UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from ___________ to ___________
Commission file number:
| (Exact name of registrant as specified in charter) |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
|
|
| |
| (Address of principal executive offices) | (Zip Code) |
| ( |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
As of November 30, 2025, the issuer had shares of its common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ZAPATA QUANTUM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable ($ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred offering costs | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Convertible Preferred Stock and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable ($ | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Deferred legal fees | ||||||||
| Operating lease liability, current | ||||||||
| Note payable - related party, current | ||||||||
| Total current liabilities | ||||||||
| Forward purchase agreement derivative liability | ||||||||
| Senior secured notes | ||||||||
| Note payable - related party, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 16) | ||||||||
| Convertible preferred stock (Series Seed, A, B-1 and B-2), $ par value; and shares authorized at September 30, 2024 and December 31, 2023, respectively; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value; and shares authorized at September 30, 2024 and December 31, 2023, respectively; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, convertible preferred stock and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
ZAPATA QUANTUM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands, except share and per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue (($ | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing ($ | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Loss on issuance of forward purchase agreement derivative liability | ( | ) | ||||||||||||||
| Change in fair value of forward purchase agreement derivative liability | ||||||||||||||||
| Loss on issuance of senior secured notes | ( | ) | ||||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share attributable to common stockholders, basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share attributable to common stockholders, diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted-average common shares outstanding, basic | ||||||||||||||||
| Weighted-average common shares outstanding, diluted | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
ZAPATA QUANTUM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(UNAUDITED)
For the Three and Nine months Ended September 30, 2024 and 2023
(In thousands, except share amounts)
| Convertible Preferred Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Deficit | |||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Retroactive application of reverse recapitalization | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Adjusted balance, beginning of period | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock resulting from exercise of stock options | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock resulting from exercise of stock options | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock resulting from exercise of stock options | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Convertible Preferred Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Deficit | |||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Retroactive application of reverse recapitalization | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Adjusted balance, beginning of period | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock resulting from exercise of stock options | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Loss on issuance of senior secured notes | — | — | ||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to the forward purchase agreement | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock related to the conversion of Senior Secured Notes
( shares or $ | — | |||||||||||||||||||||||||||||||
| Issuance of common stock in connection with debt issuance costs related to senior secured notes and capital markets advisory agreements | — | |||||||||||||||||||||||||||||||
| Conversion of redeemable convertible preferred stock into common stock in connection with the reverse recapitalization | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Issuance of common stock upon the reverse recapitalization | — | |||||||||||||||||||||||||||||||
| Issuance costs in connection with the reverse recapitalization | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| 'Balances at March 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock pursuant to the equity line of credit | — | |||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to the equity line of credit | — | |||||||||||||||||||||||||||||||
| Partial early termination of the forward purchase agreement | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| 'Balances at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock pursuant to the equity line of credit | — | |||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to the equity line of credit | — | |||||||||||||||||||||||||||||||
| Issuance of common stock under the 2024 Plan | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ZAPATA QUANTUM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| For
the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash interest expense | ||||||||
| Non-cash vendor payments | ||||||||
| Loss on issuance of forward purchase agreement derivative liability | ||||||||
| Change in fair value of senior notes | ||||||||
| Change in fair value of forward purchase agreement derivative liability | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Non-cash lease expense | ||||||||
| Equity line of credit commitment expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities and other non-current liabilities | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Deferred legal fees | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Payment of deferred offering costs | ( | ) | ||||||
| Proceeds from the exercise of stock options | ||||||||
| Issuances of common stock under equity line of credit | ||||||||
| Proceeds from the reverse recapitalization | ||||||||
| Proceeds from the partial early termination of the forward purchase agreement | ||||||||
| Payment of note payable - related party | ( | ) | ||||||
| Prepayment for forward purchase agreement | ( | ) | ||||||
| Debt discount paid in cash | ( | ) | ||||||
| Proceeds from senior and senior secured notes | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures | ||||||||
| Issuance of common stock in connection with conversion of senior secured notes ($3,853 and $0 from related parties, respectively) | $ | $ | ||||||
| Issuance of common stock in connection with debt issuance costs related to senior secured notes and capital markets advisory agreements | $ | $ | ||||||
| Issuance of senior secured notes in lieu of payments for offering costs and capital markets advisory agreements | $ | $ | ||||||
| Deferred offering costs included in accounts payable and accrued expenses and other current liabilities | $ | $ | ||||||
| Debt issuance costs in included in accrued expenses and other current liabilities | $ | $ | ||||||
| Conversion of convertible preferred stock upon the reverse recapitalization | $ | $ | ||||||
| Issuance of common stock in connection with the equity line of credit commitment shares | $ | $ | ||||||
| Issuance of common stock under 2024 Equity and Incentive Plan | $ | |||||||
| Income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
| 1. | Nature of the Business and Basis of Presentation |
Zapata Quantum, Inc., formerly known as Zapata Computing Holdings Inc. and, prior to that as, as Andretti Acquisition Corp. (“AAC”) was incorporated as a Cayman Islands exempted company on January 20, 2021. Effective August 21, 2025, Zapata Computing Holdings, Inc. changed its name to Zapata Quantum, Inc. On March 28, 2024, AAC filed an application for deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which AAC was domesticated and continues as a Delaware corporation and changed its name to Zapata Computing Holdings Inc. AAC was formed for the purpose of effecting a merger, consolidation share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. On March 28, 2024 (the “Closing Date” or “Closing”), AAC consummated a business combination with Zapata Computing, Inc. (“Legacy Zapata”) pursuant to the Business Combination Agreement by and among AAC, Tigre Merger Sub, Inc. and Legacy Zapata entered into on September 6, 2023 (the “Business Combination Agreement”).
Zapata Quantum, Inc. is a holding company whose principal asset is its ownership interest in Legacy Zapata and operates and controls all of the businesses and operations of Legacy Zapata and its subsidiaries. Zapata Quantum, Inc. and its predecessor, AAC, are collectively referred to herein as “Zapata” or the “Company”. On the Closing Date, AAC and Legacy Zapata, consummated a business combination (the “Merger”) (Note 3) pursuant to the Business Combination Agreement. In connection with the Closing of the Merger, AAC changed its name to Zapata Computing Holdings Inc. The Company’s common stock and warrants commenced trading on the Nasdaq Global Market and the Nasdaq Capital Market, respectively, under the new trading symbols “ZPTA” and “ZPTAW”, respectively, on April 1, 2024. The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, AAC, which was the legal acquirer, was treated as the “acquired” company for financial reporting purposes and Legacy Zapata, a direct wholly owned subsidiary of AAC, was treated as the accounting acquirer.
As a result, the unaudited condensed consolidated financial statements included herein for the three and nine months ended September 30, 2024 reflected (i) the historical operating results of Legacy Zapata prior to the Merger, (ii) the combined results of the Company, Legacy Zapata and AAC following the Closing of the Merger, (iii) the assets and liabilities of Legacy Zapata at their historical costs, (iv) the assets and liabilities of the Company and AAC at their historical costs, which approximated fair value, and (v) the Company’s equity structure for all periods presented.
The Company’s equity structure has been
restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s common stock, par value
$, issued to Legacy Zapata’s stockholders in connection with the recapitalization transaction. As such, the Company’s
common stock and the corresponding capital amounts and earnings per share related to Legacy Zapata’s common stock prior to the Merger
have been retrospectively restated as shares reflecting the conversion upon the closing of the Merger calculated in accordance with the
Business Combination Agreement by multiplying each share of Convertible Preferred Stock (as defined below) by
On October 7, 2024, the Board of Directors of the Company approved the cessation of its operations (the “Operational Cessation”) due to insufficient financial resources to continue funding ongoing operations and meet existing obligations. In connection with the Operational Cessation, the Company terminated all employees, except for a limited number of personnel retained for a short transitional period to assist with the wind-down of business activities. Following the Operational Cessation, the Company maintained minimal day-to-day operations.
In 2025, the Company undertook restructuring activities aimed at restarting certain aspects of its core business (Note 19).
As of October 31, 2025, following a strategic realignment to refocus on its core quantum mission, the Company will deliver subscription-based solutions to efficiently deploy and accelerate the development of quantum and hybrid quantum-classical computing applications. These solutions include software and software tools supported by services. Its software platform is based on patented technology and supports a wide range of use cases in cryptography, pharmaceuticals, manufacturing, materials discovery and defense. These planned operations are subject to the Company raising sufficient capital. The Company has worked with Fortune 500 enterprises and government agencies to unlock the potential of quantum computing. Prior to October 31, 2025, the Company also offered specialized generative AI solutions which used techniques inspired by quantum physics and were tailored to solving complex industrial problems. These solutions combined software and related services and were subscription based.
| 5 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Going Concern
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company has incurred significant losses and negative cash flows from operations since the inception of Legacy Zapata in November 2017 and expects to continue to incur losses and negative cash flows for the foreseeable future as the Company expands its penetration of the quantum computing application development market.
The Company is subject to risks and uncertainties similar to those of other companies of similar size in its industry, including, but not limited to, the need for successful development of products, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, risks associated with changes in information technology, and the ability to raise additional capital to fund operations. The Company’s long-term success is dependent upon its ability to successfully market, deliver, and scale its quantum computing application development solutions, increase revenue, meet its obligations, obtain additional capital when needed and, ultimately, to achieve profitable operations.
Since inception through September 30, 2024, the
Company has financed its operations primarily through sales of its Convertible Preferred Stock, as defined below, and common stock and
with issuances of Senior Notes and Senior Secured Notes, as defined below. The Company has generated net income of $
The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise capital through future equity or debt financing and generate profits from its operations. The Company is pursuing all available options for funding, which include seeking public or private investments and funding through the sale of equity or debt securities.
In 2025, the Company raised an aggregate of $
Although Management believes that it will be able to continue to raise funds by sale of its securities to provide the additional cash needed to meet the Company’s obligations, the restructuring activities aimed at restarting certain aspects of its core business require substantial funds to implement and there is no assurance that the Company will be able to continue raising the additional capital necessary to continue operations and execute on the Company’s business plan.
These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company has incurred significant losses and negative cash flows from operations since the inception of Legacy Zapata in November 2017 and expects to continue to incur losses and negative cash flows for the foreseeable future as the Company expands its penetration of the quantum computing application development solutions market.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these condensed consolidated financial statements include, but are not limited to, revenue recognition, the Forward Purchase Agreement derivative liability, the valuation of the Company’s common stock, and the fair value of stock-based awards. The Company’s estimates are based on historical information available as of the date of the unaudited condensed consolidated financial statements and various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.
| 6 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Foreign Currency and Currency Translation
The functional currency for the Company’s wholly owned foreign subsidiaries in Canada, Japan, Spain and the United Kingdom is United States dollars (“USD”), Japanese Yen, Euro and British Pound, respectively. Assets and liabilities of these subsidiaries are translated into USD at the exchange rate in effect on the balance sheet date. Income and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a translation adjustment, which is included in the condensed consolidated statements of stockholders’ deficit as a component of accumulated other comprehensive loss. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income (expense), net in the condensed consolidated statements of operations and comprehensive income (loss).
Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents at high-quality and accredited financial institutions.
The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable. Accounts receivable is presented after consideration of an allowance for credit losses, which is an estimate of amounts that may not be collectible. In determining the amount of the allowance at each reporting date, the Company makes judgments about general economic conditions, historical write-off experience and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions. Account balances are written off after all means of collection are exhausted and the potential for recovery is determined to not be probable. As of September 30, 2024 and December 31, 2023, the Company recorded zero allowance for credit losses.
The following table summarizes customers who represent greater than 10% of the Company’s total revenue during the three and nine months ended September 30, 2024, as well as customers who represent greater than 10% of the Company’s total accounts receivable as of September 30, 2024 and December 31, 2023:
| Percentage of Revenue | Percentage of Accounts Receivable | ||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Customer A* | - | % | % | % | % | % | % | ||||||||||||||||||
| Customer B | % | % | % | % | N/A | ** | N/A | ** | |||||||||||||||||
| Customer C | % | % | % | % | % | % | |||||||||||||||||||
| Customer D | % | N/A | ** | % | N/A | ** | N/A | ** | N/A | ** | |||||||||||||||
| Customer E | N/A | ** | % | N/A | ** | % | N/A | ** | % | ||||||||||||||||
| Customer F | % | N/A | ** | N/A | ** | N/A | ** | N/A | ** | N/A | ** | ||||||||||||||
*Related party
**Less than 10% of total revenue or accounts receivable
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an original maturity of three months or less at the time of initial purchase to be cash equivalents. As of September 30, 2024 and
December 31, 2023, the amount of cash equivalents included in cash and cash equivalents totaled $
Restricted Cash
Restricted cash consists of cash on deposit to
secure a letter of credit totaling $
| 7 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
| September 30, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
Deferred Offering Costs
The Company capitalized deferred offering costs,
consisting of direct legal, accounting, capital markets advisory and other fees and costs directly attributable to the Company’s
Merger with Legacy Zapata (Notes 3 and 16). Upon the Closing of the Merger on March 28, 2024, all deferred offering costs totaling $
Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| Level 1 | — | Quoted prices in active markets for identical assets or liabilities. |
| Level 2 | — | Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 | — | Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:
| Estimated Useful Life | ||
| Computer equipment | ||
| Furniture and fixtures | ||
| Leasehold improvements |
Costs for capital assets not yet placed into service are capitalized and are depreciated once placed into service. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance that do not improve or extend the life of the respective assets are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. If such asset group is considered to be impaired, the impairment loss to be recognized is measured based on the excess of the carrying value of the impaired asset group over its fair value.
For the three and nine months ended September
30, 2024, the Company did
| 8 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Leases
In accordance with ASC Topic 842, Leases (“ASC 842”), the Company determines whether an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date, when control of the underlying asset is transferred from the lessor to the lessee, as operating or finance leases and records a right-of-use (“ROU”) asset and a lease liability on the condensed consolidated balance sheets for all leases with a lease term of greater than twelve months. For all asset classes, the Company has elected to not recognize leases with a lease term of twelve months or less on the balance sheet and will recognize lease payments for such short-term leases as an expense on a straight-line basis.
The Company enters into contracts that contain both lease and non-lease components. Non-lease components are items or activities that transfer a good or service to the lessee, and may include items such as maintenance, utilities, or other operating costs. The Company elected to account for the lease and associated non-lease components as a single lease component for all existing classes of underlying assets. Variable costs associated with leases, such as utilities or maintenance costs, are not included in the measurement of ROU assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.
Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term and are measured using the discount rate implicit in the lease if readily determinable. If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based upon the available information at the lease commencement date. The Company’s incremental borrowing rate reflects the fixed rate at which the Company could borrow the amount of lease payments in the same currency on a collateralized basis, for a similar term in a similar economic environment. ROU assets are further adjusted for items such as initial direct costs, prepaid rent, or lease incentives. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. The Company’s lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option.
Accrued Professional Fees
Accrued professional fees consist of consideration to be paid to AAC’s legal advisors in connection with its initial public offering (“IPO”) and the consummation of the Merger. The deferred legal fees is paid by the Company in equal monthly installments over the twelve-month period starting May 3, 2024.
Forward Purchase Agreement Derivative Liability
On March 25, 2024, the Company entered into a
forward purchase agreement with Sandia Investment Management LP, acting on behalf of certain funds (collectively, “Sandia”
or the “Seller”). The Forward Purchase Agreement contains (i) an Optional Early Termination provision, which is considered
an in-substance put option (the “Optional Early Termination”) and (ii) a Variable Maturity Consideration which is the amount
of the Settlement Amount Adjustment in excess of the Settlement Amount as defined below in Note 7 (the “Variable Maturity Consideration”).
The Optional Early Termination and the Variable Maturity Consideration, as combined, are considered a freestanding financial instrument
as the Optional Early Termination and the Variable Maturity Consideration cannot be legally detachable and separately exercisable from
each other and together, meet the definition of a derivative instrument. Pursuant to the Forward Purchase Agreement, the Seller has the
option to early terminate the arrangement in whole or in part by providing written notice to the Company, and the Seller will pay the
Company an amount equal to the product of the number of shares that are early terminated and the Reset Price (as defined in Note 7) then
in effect. If the Seller exercises an Optional Early Termination, then the Settlement Amount and the Settlement Amount Adjustment to be
paid at the Valuation Date, in each case as such term is defined in Note 7, will be reduced in proportion to the number of shares subject
to the Optional Early Termination. Additionally, the Company may be obligated to pay consideration to the Seller in cash or, under certain
circumstances, in shares of the Company’s common stock, if the Settlement Amount Adjustment exceeds the Settlement Amount. The Company
recorded the derivative instrument as a liability on its condensed consolidated balance sheets and measured it at fair value with the
initial value of the derivative instrument of $
On October 8, 2024, the Company received notice
from Sandia accelerating the Valuation Date to October 8, 2024 and required a settlement of $
| 9 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Senior Notes and Senior Secured Notes
The Company performed an analysis of all of the terms and features of the Senior Notes and the Senior Secured Notes (as defined in Note 8). The Company elected the Fair Value Option to account for the Senior Notes. The Senior Notes were remeasured at fair value at each balance sheet date until they were extinguished and converted to Senior Secured Notes (Note 8) in December 2023.
The Company accounts for its Senior Secured Note issued to a third party for capital market advisory services in connection with the Merger as a stock-based award granted to non-employees (Note 8) and measured the fair value of the award at the Merger date using the binomial lattice model. The liability portion of the award is carried at redemption value, including paid in-kind interest, as Senior Secured Notes in the accompanying balance sheet. The fair value in excess of the redemption value was recorded to additional paid-in capital and a loss at issuance.
The Company accounts for its remaining Senior Secured Notes at amortized cost, as they were issued at a substantial premium and do not qualify for the Fair Value Option. The Company concluded that the optional conversion features were not required to be bifurcated and separately accounted for as a derivative.
The substantial premium related to the remaining Senior Secured Notes issued is recorded as a loss at issuance within total other expense, net in the condensed consolidated statements of operations and comprehensive income (loss). Costs related to the issuance of the Senior Secured Notes are recorded as a debt discount as a reduction of the carrying value of the notes and amortized over the term of the Senior Secured Notes and are recorded in other expense, net within the condensed consolidated statements of operations and comprehensive income (loss) using the effective interest method.
Segment Information
The Company manages its business as a single operating
segment for the purposes of assessing performance and making operating decisions. The Company’s chief executive officer, who is
the chief operating decision maker, reviews the Company’s financial information on a consolidated basis for purposes of evaluating
financial performance and allocating resources. As of September 30, 2024 and December 31, 2023, the Company does
Classification of Convertible Preferred Stock
Legacy Zapata has classified its Series Seed Preferred
Stock (“Series Seed Preferred Stock”), Series A Preferred Stock (“Series A Preferred Stock”), Series B-1 Preferred
Stock and Series B-2 Preferred Stock (the “Series B Preferred Stock” and, together with the Series Seed Preferred Stock and
Series A Preferred Stock, the “Convertible Preferred Stock” outside of stockholders’ deficit on the Company’s
condensed consolidated balance sheets because the holders of such stock had redemption features and certain liquidation rights in the
event of a deemed liquidation that, in certain situations, were not solely within the control of Legacy Zapata and would require the redemption
of the then-outstanding Convertible Preferred Stock. Upon the Closing of the Merger on March 28, 2024, shares of Convertible
Preferred Stock were converted into shares of the Company’s common stock using the Exchange Ratio of
Capitalization of Software Development Costs
The Company incurred software development costs related to development of its quantum computing platform. Given that the Company may sell the platform both as a service as well as a license, the Company evaluates software development costs to determine the point where technological feasibility is established. The Company has determined that technological feasibility is typically concurrently with the release, and therefore there have not been costs capitalized through September 30, 2024. Costs incurred in connection with maintenance and customer support are also expensed as incurred.
Revenue Recognition
Revenue is recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. Performance obligations in contracts represent distinct or separate goods or services that the Company provides to customers.
The Company recognizes revenue using the following steps: 1) identification of the contract, or contracts with a customer, 2) identification of performance obligations in the contract, 3) determination of the transaction price, 4) allocation of the transaction price to the performance obligations in the contract and 5) recognition of revenue when or as the Company satisfies the performance obligations.
At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct.
| 10 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
We currently earn revenue primarily from subscriptions to our software platform and related services. Subscriptions to our software platform are currently offered as stand-ready access to our cloud environment on an annual or multi-year basis. Our consulting services may result in either single or multiple performance obligations based on the contractual terms. We also offered services in the form of stand-ready scientific and software engineering services, which are typically only offered in conjunction with our software platform. We evaluate our contracts at inception to determine if the promises represent a single, combined performance obligation, or multiple performance obligations. We allocate the transaction price to the performance obligations identified. Judgment is required to allocate the transaction price to each performance obligation. We utilize a stand-alone selling price methodology based on observable or estimated prices for each performance obligation. We consider market conditions, entity-specific factors, and information about the customer that is reasonably available to the entity when estimating stand-alone selling price for those performance obligations without an observable selling price. Our contracts do not contain rights of return, and any variable consideration as the result of service level agreements has been immaterial. We do not have other contractual terms that give rise to variable consideration.
Revenue from subscriptions to the Company’s software platform to date have only been sold as access to the platform in its hosted environment and are therefore recognized over the contract term on a ratable basis, as the promise represents a stand-ready performance obligation.
Revenue from consulting services is generally
recognized over time. The Company’s contracts typically contain fixed-fee transaction prices. The Company determines and records
a provision for loss contracts at the contract level when the current estimate of total costs of the contract at completion exceeds the
total consideration the Company expects to receive. The Company has
For consulting services, the Company measures progress toward satisfaction of the performance obligation as the services are provided, and revenue is generally recognized based on the labor hours expended over time. Through this method, the Company recognizes revenue based on the actual labor hours incurred to date compared to the current estimate of total labors hours to satisfy the performance obligation. The Company believes this method best reflects the transfer of control to the customer. This method requires periodic updates to the total estimated hours to complete the contract, and these updates may include subjective assessments and judgments. The Company had limited contracts for which, based on the Company’s determination of the enforceability of payment terms, revenue was recognized at a point in time when payment became enforceable.
Revenue from services sold in the form of stand-ready scientific and software engineering services are recognized over the contract term on a ratable basis, as the obligation represents a stand-ready obligation.
From time to time, the Company may enter into arrangements to build license applications that can be used in conjunction with its Orquestra Platform or separately. To date, the license application built has been delivered as a perpetual license with associated post-contract support. The Company recognizes the license at the time of deployment, and the related post-contract support over the contracted service period on a ratable basis, as it is provided as a stand-ready service.
The Company’s payment terms vary by contract and do not contain significant financing components. Amounts collected in advance of revenue recognized are recorded as deferred revenue in the condensed consolidated balance sheets.
The Company’s balances resulting from contracts with customers include the following:
Contract Acquisition Costs—The Company incurs and pays commissions at the commencement of the contract. The period of the related revenue recognition for the Company’s contracts is typically less than one year in duration, and as such, the Company applies the practical expedient to expense the costs in the period in which they were incurred.
For contracts that have periods that exceed one
year, the Company capitalizes contract acquisition costs. As of September 30, 2024 and December 31, 2023, capitalized contract acquisition
costs of $
Accounts Receivable—Accounts receivable
represents amounts billed or unbilled to customers that have yet to be collected and represents an unconditional right to receive this
consideration from its customers. Account balances are written off against the allowance in the period in which the Company determines
that is it probable that the receivable will not be recovered. As of September 30, 2024 and December 31, 2023, there were accounts receivable
due from related parties amounting to $
| 11 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Deferred Revenue—Deferred revenue represents payments received for which revenue has not yet been recognized.
All deferred revenue as of December 31, 2023 was recognized as revenue during the nine months ended September 30, 2024. The decrease in deferred revenue is due to decreased customer billings for revenue not yet delivered for consulting services and subscriptions relating to timing of satisfaction of the Company’s performance obligations.
Balances from contracts with customers for the nine months ended September 30, 2024, consist of the following:
| End of Period | Beginning
of Period | |||||||
| Accounts receivable (including $ | $ | $ | ||||||
| Unbilled accounts receivable (including $ | ||||||||
| Deferred revenue | ||||||||
Balances from contracts with customers for the year ended December 31, 2023, consist of the following:
| End of Year | Beginning of Year | |||||||
| Accounts receivable (including $ | $ | $ | ||||||
| Unbilled accounts receivable (including $ | ||||||||
| Deferred revenue | ||||||||
All revenue from contracts with customers was generated in the U.S. during the three and nine months ended September 30, 2024 and 2023. Revenue from contracts with customers recognized for the three and nine months ended September 30, 2024 and 2023 consist of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Point in time | $ | ( | ) | $ | $ | $ | ||||||||||
| Over time | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Cost of Revenue
Cost of revenue includes expenses related to supporting product offerings. The Company’s primary cost of revenue is personnel costs, including salaries and other personnel-related expense. Cost of revenue also includes costs relating to the Company’s information technology and systems, including depreciation, network costs, data center maintenance, database management and data processing costs. The Company allocates these overhead expenses based on headcount, and thus these expenses are reflected in cost of revenue and each operating expense category.
Research and Development Expenses
Research and development expenses consist primarily of expenses and overhead costs incurred in developing new products. The Company expenses all research and development costs as incurred.
Sales and Marketing Expenses
Advertising expenses, which are included in sales and marketing expense in the condensed consolidated statements of operations and comprehensive income (loss), primarily include promotional expenditures, and are expensed as incurred. The amount incurred for advertising expenses for the three and nine months ended September 30, 2024 and 2023 were $1,029, $696, $2,754, and $2,090, respectively.
In addition, sales and marketing expenses consist primarily of personnel-related costs, including salaries and wages, benefits, commissions, bonuses and stock-based compensation expense for the Company’s employees engaged in sales and sales support, business development, marketing, corporate partnerships, and customer service functions. Sales and marketing expenses also include costs incurred for market research, tradeshows, branding, marketing, promotional expense, and public relations, as well as facilities and other supporting overhead costs, including depreciation and amortization.
| 12 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, for personnel and consultants in the Company’s executive and finance functions. General and administrative expenses also include professional fees for legal, finance, accounting, intellectual property, auditing, tax and consulting services, travel expenses and facility-related expenses, which include allocated expenses for rent and maintenance of facilities and other operating costs not otherwise included in research and development expenses or sales and marketing expenses.
Warrant Instruments
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own common stock and whether the instrument holders could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and, for liability-classified warrants, at each reporting period end date while the warrants are outstanding.
The Company evaluated its outstanding warrants
and concluded that the warrants to purchase common stock at an exercise price of $
The Company measures all stock-based options granted to employees, directors and non-employees based on the fair value of the awards on the date of grant using the Black-Scholes option-pricing model. The Company measures restricted stock awards using the difference, if any, between the purchase price per share of the award and the fair value of the Company’s common stock at the date of grant.
The Company grants stock options and restricted stock awards that are subject to service-based vesting conditions. Compensation expense for awards to employees and directors with service-based vesting conditions is recognized using the straight-line method over the requisite service period, which is generally the vesting period of the respective award. Compensation expense for awards to non-employees with service-based vesting conditions is recognized in the same manner as if the Company had paid cash in exchange for the goods or services, which is generally over the vesting period of the award. The Company accounts for forfeitures as they occur.
The Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive income (loss) in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. The comprehensive income (loss) for the Company equals its net income (loss) plus changes in foreign currency translation for all periods presented.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
| 13 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
The Company accounts for uncertainty in income
taxes recognized in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit
to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination
by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine
the amount of benefit to recognize in the condensed consolidated financial statements. The amount of the benefit that may be recognized
is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The provision for income
taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the
related net interest and penalties. The Company had accrued
Emerging Growth Company
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company intends to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. As a result, the Company’s unaudited condensed consolidated financial statements may not be comparable to those public companies that comply with new or revised accounting pronouncements as of public company effective dates. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments became effective for the Company for annual and interim reporting periods beginning after December 15, 2023. The Company adopted ASU 2020-06 on January 1, 2024. The adoption of this guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all public entities, including public entities with a single reportable segment, to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures. The guidance in this update is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires enhanced income tax disclosures, including specific categories and disaggregation of information in the effective tax rate reconciliation, disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. The requirements of the ASU are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures.
In March 2024, the FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements, which amends the Codification to remove references to various concepts statements and impacts various topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The guidance in this update is effective for fiscal years beginning after December 15, 2024. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.
| 14 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires more detailed disclosures, on an annual and interim basis, about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. This ASU may be applied either prospectively or retrospectively. The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures.
3. Merger
On March 28, 2024, the Company completed its planned Merger with Legacy Zapata, pursuant to which Legacy Zapata became a wholly owned subsidiary of the Company.
In connection with the Merger, AAC filed an application for deregistration with the Cayman Islands Registrar of Companies and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the state of Delaware, under which AAC was domesticated and continues as a Delaware corporation (the “Domestication”), changing its name to Zapata Computing Holdings Inc. At the effective time of the Domestication, existing holders of ordinary shares of AAC received shares of the Company’s common stock in exchange for their Class A and Class B ordinary shares held immediately prior to the consummation of the Merger.
With the Closing of the Merger, holders of shares
of Legacy Zapata common stock and Legacy Zapata Convertible Preferred Stock received an aggregate of shares of the Company’s
common stock, and holders of Legacy Zapata Options received options to purchase an aggregate of
For accounting purposes, the Merger was accounted for as a reverse recapitalization whereby Legacy Zapata was treated as the accounting acquirer and AAC was treated as the acquired company. This determination was primarily based on the following factors: (i) Legacy Zapata’s existing stockholders had the majority of the voting interest in the combined entity with an approximate voting interest; (ii) the combined company’s board of directors consisted of seven board members with one board member designated by AAC, and each of the remaining six board members were members of the board of directors of Legacy Zapata and one additional independent board member; (iii) Legacy Zapata’s senior management comprised all the senior management of the combined company; and (iv) Legacy Zapata’s existing operations comprised the ongoing operations of the combined company. In accordance with guidance applicable to these circumstances, the Merger was treated as the equivalent of Legacy Zapata issuing stock for the net assets of AAC, accompanied by a recapitalization. The net assets of AAC were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger were those of Legacy Zapata.
On April 1, 2024, in connection with the consummation
of the Merger, the Company’s common stock was listed on the Nasdaq Global Market, and the Public Warrants and the Private Placement
Warrants were listed on the Nasdaq Capital Market, under the new trading symbols “ZPTA” and “ZPTAW,” respectively.
Costs paid by the Company directly attributable to the Merger were $
Merger Consideration
The following table reconciles the elements of
the Merger to the condensed consolidated statement of cash flows and the consolidated statement of changes in equity. Upon the Closing
of the Merger, the Company assumed liabilities of $
| March 28, 2024 | ||||
| Cash - AAC Trust (net of redemptions) | $ | |||
| Less: AAC costs paid at Closing | ( | ) | ||
| Less: Notes payable - related party paid at Closing | ( | ) | ||
| Net proceeds from the Merger | ||||
| Less: Liabilities obtained from AAC | ( | ) | ||
| Merger consideration | $ | |||
| 15 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
The number of shares of the Company’s common stock outstanding immediately following the consummation of the Merger was as follows:
| Share Ownership | ||||
| Legacy Zapata equityholders | ||||
| AAC public shareholders | ||||
| AAC Sponsor shares | ||||
| Senior Secured Note holders | ||||
| Additional Shares issued pursuant to the Forward Purchase Agreement | ||||
| Capital markets advisors | ||||
| Total shares of common stock immediately after the Merger | ||||
4. Fair Value Measurements
The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
| Fair Value Measurements at September 30, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market mutual funds | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Forward purchase agreement derivative liability | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Fair Value Measurements at December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market mutual funds | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
The Company’s cash equivalents maintained in money market funds are based on quoted market prices in active markets, which represent a Level 1 measurement within the fair value hierarchy. The carrying values of the Company’s accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities, the note payable – related party, deferred revenue, deferred legal fees and the obligation to issue common stock approximate their fair values due to the short-term nature of these instruments. The Forward Purchase Agreement derivative liability is carried at fair value, determined according to Level 3 inputs in the fair value hierarchy (Note 7).
For the nine months ended September 30, 2024 and 2023, there were no transfers between Level 1, Level 2 and Level 3.
Valuation of Forward Purchase Agreement Derivative Liability
As described in Note 7, the Company entered into the Forward Purchase Agreement in connection with the Merger on March 25, 2024. The Forward Purchase Agreement contains (i) an Optional Early Termination provision, and (ii) a Variable Maturity Consideration. The Optional Early Termination and the Variable Maturity Consideration, as combined, are considered as a freestanding financial instrument and meet the definition of a derivative instrument. The fair value of the forward purchase agreement derivative liability, consisting of the Optional Early Termination and the Variable Maturity Consideration, was estimated using a Monte-Carlo Simulation in a risk-neutral framework. The fair value of the derivative liability was equal to the difference between the fair value of the Forward Purchase Agreement and the amount of cash receivable at the two-year settlement date, which was calculated as the present value of the initial reset price of $ per share (as defined in the Forward Purchase Agreement) discounted using the term-matched risk-free rate.
As described in Note 19, Subsequent Events, Sandia
exercised its right under the Forward Purchase Agreement to accelerate the Valuation Date to October 8, 2024, following a VWAP Trigger
Event.
| 16 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
The following table represents the significant inputs used in calculating the forward purchase agreement derivative liability on the issuance date:
| March 28, 2024 | ||||
| Stock price | $ | |||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
| Expected dividend yield | % | |||
The Company determined the initial
value for the forward purchase agreement derivative liability of $
The following table presents the change in fair value of the forward purchase agreement derivative liability for the three and nine months ended September 30, 2024:
| Amounts | ||||
| Balance as of December 31, 2023 | $ | |||
| Forward purchase agreement derivative liability issuance | ||||
| Partial early termination of forward purchase agreement derivative liability | ( | ) | ||
| Change in fair value of forward purchase agreement derivative liability | ||||
| Balance as of June 30, 2024 | ||||
| Change in fair value of forward purchase agreement derivative liability | ( | ) | ||
| Balance as of September 30, 2024 | $ | |||
5. Property and Equipment, Net
Property and equipment, net consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Computer equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvement | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation and amortization expense of property
and equipment for the three and nine months ended September 30, 2024 and 2023 was $
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| September 30, 2024 |
December 31, 2023 | |||
| Accrued employee compensation and benefit | $ |
$ | ||
| Accrued professional fees | |
| ||
| Other | |
| ||
| $ |
$ |
7. Forward Purchase Agreement
On March 25, 2024, the Company entered into the Forward Purchase Agreement with Sandia, pursuant to which Sandia purchased, from the open market, Recycled Shares and Additional Shares, which represents the maximum number of shares subject to purchase under the Forward Purchase Agreement, subject to adjustment as described below (the “Maximum Number of Shares”). The number of shares subject to the Forward Purchase Agreement (the “Number of Shares”) is subject to reduction following a termination of the Forward Purchase Agreement with respect to such shares as described under “Optional Early Termination” in the Forward Purchase Agreement.
| 17 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Pursuant to the Forward Purchase Agreement, at
the Closing of the Merger, the Company prepaid to Sandia (the “Prepayment”), with respect to the Recycled Shares, with proceeds
from the trust account, a cash amount equal to the (x) product of the number Recycled Shares and (y) $ per share, totaling $
As of September 30, 2024, the reset price (the
“Reset Price”) was $
In the event of a Dilutive Offering Reset, the Maximum Number of Shares will be increased to an amount equal to the quotient of (i) divided by (ii) the quotient of (a) the price of such Dilutive Offering divided by (b) $10.00. In such event, Sandia has the right to purchase more Additional Shares, up to the Maximum Number of Shares, for which the Company will be required to provide a cash prepayment to Sandia netted against the purchase price for such shares, and such Additional Shares will be subject to the terms of the Forward Purchase Agreement.
To the extent Sandia does not early terminate shares purchased under the Forward Purchase Agreement, as described below, the parties will settle the then outstanding shares held by Sandia upon the Valuation Date, such date being two years from the Closing of the Merger, March 28, 2026, subject to acceleration under certain circumstances, including the occurrence of a VWAP Trigger Event, defined as an event that occurs if the volume weighted average price per share on any scheduled trading day, for any trading days during a consecutive trading day-period, is below $1.00 per share. On the Cash Settlement Payment Date, which is the tenth business day following the last day of the valuation period commencing on the Valuation Date, as described in the Forward Purchase Agreement (the “Valuation Period”), Sandia will pay the Company a cash amount equal to (A) the number of shares subject to the Forward Purchase Agreement as of the Valuation Date less the number of unregistered shares, multiplied by (B) the volume-weighted average price over the Valuation Period (the “Settlement Amount”); provided, that if the amount of the Settlement Amount Adjustment (as defined below) payable by the Company to Sandia is less than the Settlement Amount, then the Settlement Amount Adjustment will be automatically netted from the Settlement Amount and any remaining amount paid in cash. The Company will pay to Sandia on the Cash Settlement Payment Date an amount (the “Settlement Amount Adjustment”) equal to (1) the Number of Shares as of the Valuation Date multiplied by $2.00 per share if the amount is to be paid in cash, or (2) if the Settlement Amount Adjustment exceeds the Settlement Amount, the Company may at its election pay the Settlement Amount Adjustment to Sandia in shares of common stock of the Company, in an amount equal to the product of the number of shares, including the Recycled Shares and the Additional Shares as of the Valuation Date multiplied by $2.25; provided, that in certain circumstances as described in the Forward Purchase Agreement, including if a Delisting Event (as defined in the Forward Purchase Agreement) occurs during the Valuation Period, such amount must be paid in cash.
In addition, during the term of the Forward Purchase Agreement, Sandia may elect to terminate the transaction in whole or in part by providing a written notice to the Company, which will specify the quantity by which the number of shares will be reduced (the “Terminated Shares”). The Company shall be entitled to an amount from Sandia, equal to the product of (x) the number of Terminated Shares and (y) the Reset Price, as defined hereafter, on the date of notice.
The Company has determined that the Optional Early
Termination provision and the Variable Maturity Consideration, within the Forward Purchase Agreement as combined are considered a freestanding
financial instrument as the Optional Early Termination and the Variable Maturity Consideration cannot be legally detachable and separately
exercisable from each other and meet the definition of a derivative. The Company recorded the derivative instrument as a liability on
its condensed consolidated balance sheets and measured it at fair value of $
The Prepayment is accounted for as a subscription receivable and recorded as a reduction to equity to reflect the substance of the overall arrangement as a net repurchase of the Recycled Shares and the Additional Shares. The Company recognized a subscription receivable of $ associated with the Recycled Shares as a reduction to additional paid-in capital in its condensed consolidated balance sheet and a subscription receivable associated with the Additional Shares was fully offset with the proceeds that Sandia paid for the purchase of these shares, resulting in no cash received or paid for such share issuance.
| 18 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
In April 2024, Sandia partially exercised the
optional early termination right under the Forward Purchase Agreement, pursuant to which shares were terminated and the Company
received payments totaling $
In addition, the Company reimbursed Sandia $
As described in Note 19, Subsequent Events, under
the Forward Purchase Agreement, Sandia had the right to accelerate the Valuation Date upon the occurrence of a VWAP Trigger Event, defined
as the Company’s common stock trading below $1.00 per share for 20 trading days within any 30 consecutive trading-day period. Following
such an event, Sandia exercised this right and accelerated the Valuation Date to October 8, 2024. As a result, the
8. Debt
The aggregate principal amount of debt outstanding as of September 30, 2024 and December 31, 2023 consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Senior secured notes | $ | $ | ||||||
| Note payable - related parties | ||||||||
| $ | $ | |||||||
Current and non-current debt obligations reflected in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Current liabilities: | ||||||||
| Note payable - related parties | $ | $ | ||||||
| Debt, current portion | ||||||||
| Non-current liabilities: | ||||||||
| Note payable - related parties | ||||||||
| Senior secured notes | ||||||||
| Debt, net of current portion | ||||||||
| Total Debt | $ | $ | ||||||
Senior Notes
On June 13, 2023, Legacy Zapata entered into a
senior note purchase agreement with and issued senior promissory notes to certain lenders. Under the agreements, Legacy Zapata was permitted
to issue convertible notes in an aggregate principal amount of up to $
| 19 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Senior Secured Notes
On December 22, 2023, Legacy Zapata entered into
a Security Agreement and Senior Secured Note Purchase Agreement (collectively, the “Senior Secured Notes Agreements”) with
new and existing noteholders. Under the Senior Secured Notes Agreements, Legacy Zapata was authorized to issue convertible notes (the
“Senior Secured Notes”) in an aggregate principal amount of up to $
From January through March 2024, Legacy Zapata
issued $
The Senior Secured Notes issued from January 2024
to March 2024 totaling $
The Company issued a Senior Secured Note to a third party for capital market advisory services that vested contingently with the Merger. Upon the satisfaction of the performance condition as described in the agreement, the Company accounted for the Senior Secured Note as a stock-based award granted to a non-employee and measured the award based on the fair value on the Merger date, with the liability portion of the award recorded as Senior Secured Notes at the redemption value, and the excess fair value recorded as a loss on issuance of convertible note within total other expense, net in the condensed consolidated statements of operations and comprehensive income (loss).
The aggregate premium associated with the Senior
Secured Notes, which was recorded as a loss on the issuance date of $
The aggregate premium associated with the Senior Secured Notes issued during the nine months ended September 30, 2024 was estimated utilizing a binomial lattice model which includes a combination of the discounted cash flow and optional conversion with De-SPAC features. The following table presents the significant unobservable inputs that were included in the discounted cash flow feature and the optional conversion with De-SPAC feature for the period of January 1, 2024 to March 27, 2024 (the last issuance date):
| Significant Unobservable Input | Input Range | |
| Model | Discounted cash flow | |
| Discount rate | ||
| Model | Optional conversion with De-SPAC | |
| Closing stock price | $ to $ | |
| Expected annual volatility | ||
| Risk free rate | ||
| Dividend yield | ||
| Preferred yield |
| 20 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Upon the Closing of the Merger, a portion of the
aggregate outstanding the Senior Secured Notes converted into shares of the Company’s common stock ( shares to
related parties). Upon the conversion of the Senior Secured Notes, the principal balance of the debt of $
The Company recognizes the remaining Senior Secured
Notes at amortized cost. As of September 30, 2024, the $
Notes Payable - Related Parties
To finance transaction costs in connection with
the Merger, the Sponsor and certain of AAC’s officers and directors made working capital loans (the “Notes Payable –
Related Party”) to AAC prior to the Closing. The Notes Payable – Related Party would either be repaid upon the consummation
of the Merger, without interest, or at AAC’s discretion, up to $
On March 28, 2024, the terms of the Notes Payable
– Related Party were amended, pursuant to which the outstanding principal balance plus the accrued interest of $
As of September 30, 2024, future minimum payments required on the Senior Secured Notes and the Notes Payable – Related Party are as follows:
| Year Ending | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total future minimum payments | ||||
| Less: imputed interest | ( | ) | ||
| Total Debt | $ | |||
9. Convertible Preferred Stock
In connection with the Merger on March 28, 2024,
each holder of the Convertible Preferred Stock was converted into the right to receive
| 21 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
As of December 31, 2023, the authorized, issued, and outstanding Convertible Preferred Stock and their principal terms after retrospectively adjusting for the effect of the reverse recapitalization were as follows:
| December 31, 2023 | ||||||||||||||||||||||||
| Par Value | Preferred Stock Authorized | Preferred Stock Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | |||||||||||||||||||
| Series Seed Preferred Stock | $ | $ | $ | |||||||||||||||||||||
| Series A Preferred Stock | ||||||||||||||||||||||||
| Series B-1 Preferred Stock | ||||||||||||||||||||||||
| Series B-2 Preferred Stock | ||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||
As of December 31, 2023, the holders of the Convertible Preferred Stock had the following rights and preferences:
Voting Rights—The holders of Convertible Preferred Stock voted together with all other classes and series of stock as a single class on an as-converted basis. Each share of Convertible Preferred Stock entitled the holder to such number of votes per share as would equal the number of shares of common stock into which the share was then convertible. The holders of the Series A Preferred stock were entitled to elect one member of the Company’s Board of Directors, holders of the Series B Preferred Stock were entitled to elect one member of the Company’s Board of Directors, the holders of Convertible Preferred Stock, voting together, were entitled to elect two members of the Company’s Board of Directors, and the holders of the common stock were entitled to elect two members of the Company’s Board of Directors.
Dividends—The Convertible Preferred Stock had the right to receive dividends only when, as and if declared by the Company’s Board of Directors. No dividends have been declared through September 30, 2024.
Redemption—The Series Seed Preferred Stock, Series A Preferred Stock, and Series B Preferred Stock were not redeemable.
Liquidation—In the event of liquidation,
dissolution or winding up of the Company, the Convertible Preferred Stockholders would be entitled to receive, in preference to all common
stockholders, an amount after retrospectively adjusting for the effect of the reverse recapitalization equal to $
Conversion—Each share of Series Seed
Preferred Stock, Series A Preferred Stock, Series B-1 Preferred Stock, and Series B-2 Preferred Stock was convertible into one share of
common stock based on a conversion price of $
10. Common Stock
As of December 31, 2023, Legacy Zapata had shares of $ par value common stock authorized. The voting, dividend, and liquidation rights of the holders of Legacy Zapata’s common stock were subject to and qualified by the rights, powers and preferences of the holders of the Convertible Preferred Stock set forth above and as designated by resolution of the Board of Directors. Each share of common stock entitles the holder to one vote, together with the holders of the Convertible Preferred Stock, on all matters submitted to the stockholders for a vote. The holders of common stock are entitled to receive dividends, if any, as declared by Legacy Zapata’s Board of Directors, subject to the preferential dividend rights of Convertible Preferred Stock.
As of December 31, 2023, after retrospectively
adjusting for the effect of the reverse recapitalization, Legacy Zapata reserved
| 22 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
In connection with the consummation of the Merger,
the Company’s authorized capital stock consists of shares of the Company’s common stock, par value $ per
share, and shares of preferred stock, par value $ per share. No shares of preferred stock were issued or outstanding
as of September 30, 2024. Upon the Closing, a) shares of the Company’s common stock were issued to Legacy Zapata shareholders
based on the Exchange Ratio of
Under the terms of the Company’s certificate of incorporation, the Company’s Board of Directors is authorized to direct the Company, without any action or vote by its stockholders (except as may be provided by the terms of any class or series of Company preferred stock then outstanding), to issue shares of preferred stock in one or more series without the approval of the Company’s stockholders. The Company’s Board of Directors has the discretion to determine the rights, powers, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
Unvested Shares
In connection with the Closing on March 28, 2024, shares of Sponsor Shares became unvested and are subject to the forfeiture pursuant to the closing available cash provisions as described in the sponsor support agreement in contemplation of the Merger. All of the Unvested Shares will become vested if, within three years of the Closing, the volume-weighted average price of the Company’s common stock equals or exceeds $ per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any trading days within any -trading day period, or if there is a change of control of the Company. If neither of these events occur within three years of the Closing, then the Unvested Shares will be forfeited and shall be transferred by the sponsor and the sponsor co-investor to the Company, without any consideration for such transfer. The Unvested Shares are indexed to the Company’s own stock and are therefore classified as equity in the Company’s condensed consolidated financial statements. Unvested Shares vested during the nine months ended September 30, 2024.
Lincoln Park Purchase Agreement
On December 19, 2023, AAC and the Company entered
into the Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park agreed to
purchase up to $ of shares of common stock from time to time over a 36-month period following the Closing of the Merger, subject
to the satisfaction of the conditions in the Purchase Agreement. In accordance with the Purchase Agreement, the Company paid Lincoln Park
the Commitment Fee of $
| 23 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
In connection with the Purchase Agreement, AAC and the Company also entered into a Registration Rights Agreement with Lincoln Park, pursuant to which the Company is obligated to file the Lincoln Park Registration Statement that covers the shares of common stock that are issuable to Lincoln Park under the Purchase Agreement (including the Commitment Shares) with the SEC within 45 days following the Closing of the Merger. The Company filed the Lincoln Park Registration Statement on April 12, 2024, which was declared effective on April 18, 2024.
As of September 30, 2024, the Company has issued
shares of its common stock to Lincoln Park under Purchase Agreement for aggregate proceeds of $
2024 Lincoln Park Purchase Agreement
On August 13, 2024, the Company entered into a
purchase agreement (the “2024 Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase up
to $
In connection with the 2024 Purchase Agreement, the Company also entered into a Registration Rights Agreement with Lincoln Park, (the “2024 Registration Rights Agreement”) with Lincoln Park, pursuant to which the Company will file a registration statement that covers the shares of common stock that are issuable to Lincoln Park under the 2024 Purchase Agreement with the SEC within 15 business days following the date of the execution of the 2024 Registration Rights Agreement. The Company filed the Lincoln Park Registration Statement on September 3, 2024, which was declared effective on September 9, 2024.
As of September 30, 2024, the Company has issued
shares of its common stock to Lincoln Park under 2024 Purchase Agreement for aggregate proceeds of $
As of September 30, 2024 and December 31, 2023, shares and shares of the Company’s common stock were outstanding, respectively.
11. Warrants
Public Warrants and Private Placement Warrants
As part of AAC’s IPO, AAC issued
Public Warrants to third-party investors where each whole warrant entitles the holder to purchase one
share of AAC’s common stock at an exercise price of $
The Warrants expire on the fifth anniversary of the Merger or earlier upon redemption or liquidation and are exercisable commencing 30 days after the Merger, provided that the Company has an effective registration statement under the Securities Act covering the shares of the Company’s common stock issuable upon exercise of the Warrants and a current prospectus relating to them is available or a valid exemption is available
The Company may redeem the outstanding warrants:
| a. | in whole and not in part; |
| b. | at a price of $ |
| c. | upon a minimum of |
| d. | if, and only if, the closing price of the common stock equals or exceeds $ per share for any trading days within a -trading day period ending three trading days before the Company can send the notice of redemption to the warrant holders. |
If the Company calls the Public Warrants for redemption
as described above, the Company may elect to require the exercise of the Public Warrants on a “cashless basis” as described
below. If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable
to register or qualify the underlying securities for sale under all applicable state securities laws. If the Company calls the Public
Warrants for redemption, as described above, its management will have the option to require any holder that wishes to exercise the Public
Warrants to do so on a “cashless basis”. In such event, each holder would pay the exercise price by surrendering the Public
Warrants for that number of common shares equal to the quotient obtained by dividing (x) the product of the number of the Company’s
common stock underlying the Public Warrants, multiplied by the excess of the “fair market value” (as defined below) of the
Company’s common stock over the exercise price of the Public Warrants by (y) the “fair market value.” Solely for purposes
of this paragraph, the “fair market value” means the volume-weighted average last reported sale price of the Company’s
common stock as reported for the ten trading days ending on the third trading day prior to the date on which the notice of redemption
is sent to the holders of the Public Warrants. However, except as described below, the Public Warrants will not be adjusted for issuances
of the Company’s common stock at a price below their exercise price. Additionally, in no event will the Company be required to net
cash settle the Public Warrants. The Private Placement Warrants are substantially identical to the Public Warrants. There are certain
terms that differ the Private Placement Warrants from the Public Warrants including that the Private Placement Warrants and the Company’s
common stock issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until
As of September 30, 2024 and December 31, 2023,
there were
| 24 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
2018 Equity Incentive Plan
In 2018, the Board of Directors adopted the 2018 Stock Incentive Plan. Under the terms of the 2018 Plan, incentive stock options (“ISO”) could be granted to employees of Legacy Zapata and nonqualified stock options (“NQ”), or restricted stock awards (“RSA”) could be granted to directors, consultants, employees and officers of Legacy Zapata. The exercise price of stock options cannot be less than the fair value of Legacy Zapata’s common stock on the date of grant. The options vest over a period determined by the Board of Directors, generally four years, and expire not more than ten years from the date of grant.
After retrospectively adjusting for the effect of the reverse recapitalization, the total number of shares of common stock designated for issuance under the 2018 Plan was as of December 31, 2023. As of December 31, 2023, there were shares remaining available for future grants under the 2018 Plan. Following the effectiveness of the 2024 Plan in March 2024, the 2018 Stock Incentive Plan has been terminated and Legacy Zapata will not make any further awards under the 2018 Stock Incentive Plan.
2024 Equity and Incentive Plan
In March 2024, the Board of Directors adopted
the 2024 Plan, which has been approved by the Company’s shareholders. The 2024 Plan became effective immediately prior to the consummation
of the Merger. Under the terms of the 2024 Plan, equity and equity-based incentive awards, as well as cash awards may be granted to employees,
directors and consultants. As of September 30, 2024, the Company has reserved
Inducement Awards
The Company issued options exercisable for an aggregate of shares of the Company’s common stock as inducement awards outside of the 2024 Plan during the nine months ended September 30, 2024.
Stock Option Valuation
The Company uses the Black-Scholes option-pricing model to value option grants on the date of grant and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimations. The Company bases its expected volatility on the volatilities of certain publicly-traded peer companies. Management believes that the historical volatility of the Company’s stock price does not best represent the expected volatility of the stock price. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the stock options granted. The Company uses the simplified method (an expected term based on the midpoint between the vesting date and the end of the contractual term) to calculate the expected term for awards that qualify as “plain-vanilla” options as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees. The expected dividend yield assumption is based on the Company’s history and expectation of dividend payouts.
In determining the exercise prices for options granted, the Company has considered the fair value of the common stock as of the measurement date. Prior to the Closing of the Merger, the fair value of the common stock was determined by management with consideration to a third-party valuation, which contemplated a broad range of factors, including the illiquid nature of the investment in the Company’s common stock, the Company’s historical financial performance and financial position, the Company’s future prospects and opportunity for liquidity events, and recent sale and offer prices of common and convertible preferred stock, if any, in private transactions negotiated at arm’s length. Following the Closing of the Merger, the fair value of the common stock has been determined based on the traded price of the Company’s common stock.
The following table presents the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted during the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Risk-free interest rate | - | - | ||||||
| Expected term (in years) | - | |||||||
| Expected volatility | - | |||||||
| Expected dividend yield | ||||||||
| 25 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Stock Options
Upon the Closing of the Merger,
the outstanding options to purchase shares of Legacy Zapata common stock were converted into options to purchase an aggregate of
shares of the Company’s common stock, determined by giving effect of the Exchange Ratio of
Stock option activity after retrospectively adjusting for the effect of the reverse recapitalization during the nine months ended September 30, 2024 is as follows:
| Number of Shares | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ) | |||||||||||||||
| Forfeited and expired | ) | |||||||||||||||
| Balance at September 30, 2024 | $ | $ | ||||||||||||||
| Options vested and exercisable at September 30, 2024 | $ | $ | — | |||||||||||||
| Options vested and expected to vest at September 30, 2024 | $ | $ | — | |||||||||||||
All
stock options granted have time-based vesting conditions and generally vest over a four-year period, with certain awards vesting over
two or three years. The weighted-average grant-date fair value of awards granted for the nine months ended September 30, 2024 was $
per share. During
the nine months ended September 30, 2024 and 2023, the Company recorded $
As
of September 30, 2024, there was $ of total unrecognized compensation cost related to unvested stock options. The Company
expects to recognize the unrecognized compensation amount over a remaining weighted-average period of
Restricted Common Stock (“RSU”)
The Company may grant nonvested restricted common stock to employees, directors, and consultants with or without cash consideration. These grants contain certain restrictions on the sale of the shares. Nonvested restricted common stock are not considered issued or outstanding for accounting purposes until they vest. Upon termination of the relationship with a holder of such shares, the Company has the right to repurchase the nonvested restricted common stock shares at the there was no consideration, a price per share defined in the agreement.
Nonvested restricted common stock activity during the nine months ended September 30, 2024, is as follows:
| Number of Shares | Weighted- Average Grant Date Fair Value | |||||||
| Unvested restricted common stock at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Unvested restricted common stock at December 31, 2024 | ||||||||
As of September 30, 2024, the total unrecognized
compensation cost related to unvested restricted common stock was $. The Company expects to recognize the unrecognized compensation
amount over a remaining weighted-average period of
| 26 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Employee Stock Purchase Plan
In March 2024, the Board of Directors adopted the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which has been approved by the Company’s shareholders. The 2024 ESPP provides eligible employees with an opportunity to purchase shares of the Company’s common stock through accumulated contributions, which generally will be made through payroll deductions. The 2024 ESPP permits the administrator of the 2024 ESPP to grant purchase rights that qualify for preferential tax treatment under Section 423 of the Internal Revenue Code of 1986 (the “Code”). In addition, the 2024 ESPP authorizes the grant of purchase rights that do not qualify under Code Section 423 pursuant to rules, procedures or sub-plans adopted by the administrator that are designed to achieve desired tax or other objectives. As of September 30, 2024, shares (the “Initial ESPP Limit”) of the Company’s common stock were reserved for issuance under the 2024 ESPP. The 2024 ESPP provides that the number of shares of the Company’s common stock reserved and available for issuance under such plan will automatically increase each January 1, beginning on January 1, 2025 and on each January 1 thereafter, by the least of the Initial ESPP Limit, 1% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31, or such lesser amount as determined by the plan administrator.
Each offering of the Company’s common stock under the 2024 ESPP will be for a period of nine months (the “offering period”). The first offering period under the 2024 ESPP will begin and end on such date or dates as determined by the plan administrator. Subsequent offerings under the 2024 ESPP will generally begin on the first business day occurring on or after each January 1 and July 1 and will end on the last business day occurring before the following July 1 and January 1, respectively. Shares are purchased on the last business day of each offering period (the “exercise date”).
On the exercise date of each offering period, the eligible employee is deemed to have exercised the option, at the exercise price, for the lowest of (i) a number of shares of the Company’s common stock determined by dividing such employee’s accumulated payroll deductions or contributions on such exercise date by the exercise price; (ii) the number of shares of the Company’s common stock determined by dividing $ by the fair market value of the Company’s common stock on the first day of such offering period; or (iii) such lesser number as established by the plan administrator in advance of the offering. The exercise price is equal to the lesser of (i) the fair market value per share of the Company’s common stock on the first day of the offering period or (ii) of the fair market value per share of the Company’s common stock on the exercise date. The maximum number of shares of the Company’s common stock that may be issued to any eligible employee under the 2024 ESPP in a calendar year is a number of shares of the Company’s common stock determined by dividing $25 by the fair market value of the Company’s common stock, valued at the start of the offering period, or such other lesser number of shares as determined by the plan administrator from time to time.
As of September 30, 2024, the Company has not issued any shares under the 2024 ESPP.
Stock-Based Compensation
The following table below summarizes the classification of the Company’s stock-based compensation expense related to stock options and restricted common stock in the condensed consolidated statements of operations and comprehensive income (loss):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ) | |||||||||||||||
| General and administrative | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
13. Leases
Operating leases
As a lessee, the Company leases certain office spaces under non-cancelable operating leases located in the United States and Canada. All of the Company’s long-term lease agreements expired prior to and as of September 30, 2024. On May 7, 2024, the Company entered into a month-to-month lease in Canada that commenced on June 1, 2024, which was terminated in connection with the Operational Cessation. On July 19, 2024, the Company entered into a six months lease for office space in the United States commenced on September 3, 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease costs | $ | $ | $ | $ | ||||||||||||
| 27 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
There were
The following table sets forth supplemental information about the leases for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of operating liabilities | $ | $ | ||||||
| Weighted-average remaining lease term – operating leases | — | |||||||
| Weighted-average discount rate – operating leases | — | % | ||||||
14. Income Taxes
In determining the quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income (loss), adjusted for discrete items arising in that quarter. In addition, the effect of changes in enacted tax laws or rates and tax status is recognized in the interim period in which the change occurs.
The computation of the estimated annual effective income rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and tax in foreign jurisdictions and permanent and temporary differences. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or the Company’s tax environment changes. To the extent that the estimated annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in the income tax provision in the quarter in which the change occurs.
For the three and nine months ended September
30, 2024, the Company recorded an income tax provision of $
15. Retirement Plan
The Company maintains a defined-contribution plan under Section 401(k) of the Internal Revenue Code of 1986 (the “401(k) Plan”). The Company’s 401(k) Plan covers all eligible employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. Employees of the Company may participate in the 401(k) plan immediately upon hiring, as there are no age or service requirements. The Company does not match employee contributions.
16. Commitments and Contingencies
License and Collaboration Agreements
During 2018, the Company entered into an exclusive patent license agreement (the “license agreement”) with a term that continued unless terminated by the Company or the licensor. The license agreement contained annual license maintenance fee payments, milestone payments, as well as payments based on a percentage of net sales. Under the license agreement, the Company issued shares of its common stock to the licensor representing four percent of the Company’s capital stock on a fully diluted basis.
The license agreement obligated the Company to
pay fixed annual license maintenance fees of $
The license agreement obligated the Company to
pay fixed milestone payments upon the achievement of certain sales thresholds. The payments total $
The license agreement obligated the Company
to pay a royalty calculated as two percent of net sales. The license agreement also required the Company to make payments related
to any sublicensing agreements, with varying amounts based on the type of sublicense. The Company paid $
| 28 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Andretti Agreements – Related Party
On February 10, 2022, Legacy Zapata entered into
a sponsorship agreement for marketing services to be provided by Andretti Autosport Holding Company, LLC (f/k/a Andretti Autosport Holding
Company, Inc., “Andretti Global”). The total commitment under the sponsorship agreement is $
On March 28, 2024, Legacy Zapata entered into
a sponsorship agreement with Andretti Autosport 1, LLC, an affiliate of Andretti Global. The agreement expires on
Advisory and Other Agreements
In connection with the Merger, on September 13,
2023, the Company entered into an agreement with a third party for advisory services. In March 2024, the payment terms were amended to
provide for a fee of $
On February 9, 2024, the Company entered into
an engagement letter with an additional third party, as amended on February 27, 2024. The Company agreed to pay the third party a non-refundable
cash fee of $
The following table reflects the Company’s
obligations in connection with the aforementioned advisory and other agreements recorded in accounts payable, accrued expenses and other
current liabilities, and non-current liabilities within the condensed consolidated balance sheet as of September 30, 2024. During the
nine months ended September 30, 2024, the Company paid $
| Year ending | Amount | |||||
| 2024 (remaining) | $ | |||||
| 2025 | ||||||
| Total | $ | |||||
In the fourth quarter of 2024, due to the Operational Cessation, the Company ceased making payments on the advisory and other agreements described above and the remaining balance was subsequently converted into the Company’s common stock in the second and fourth quarters of 2025.
Collaborative Research Agreement
On February 12, 2024, the Company entered into a collaborative research agreement with a third party, pursuant to which the Company and the third party partnered to develop a quantum generative AI application and a hybrid solver over a three-month term. The Company led the development of the application.
The third
party also contributed $
The collaborative research agreement effectively terminated in October 2024 in connection with the Company’s operational cessation described in Note 19, Subsequent Events.
| 29 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Quantum Cloud Service Agreement
On February 12, 2024, the Company entered into
an agreement with a third party under which the third party will host Zapata’s quantum generative AI application on its cloud service
and will provide support services for a period of
The cloud service agreement effectively terminated in October 2024 in connection with the Company’s operational cessation described in Note 19, Subsequent Events.
The Company applies the two-class method when computing net income (loss) per share attributable to common stockholders as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the undistributed earnings as if all income (loss) for the period had been distributed. There is no allocation required under the two-class method during periods of loss since the participating securities do not have a contractual obligation to share in the losses of the Company. The convertible preferred stock was determined to be the participating security, and for all periods presented in which the convertible preferred stock was outstanding, the Company incurred a net loss; therefore, no allocation is required.
Basic net income (loss) per share available to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the periods presented. The weighted-average number of common stock outstanding excludes any unvested shares that have not met their vesting conditions during the periods presented.
Diluted net income (loss) per share reflects the potential dilution that could occur using the treasury stock and if-converted methods, as applicable. For purposes of this calculation, outstanding stock options and warrants to purchase common stock, Unvested Shares, unvested RSUs, Senior Secured Notes including accrued interest and the potential issuance of common stock upon the conversion of the Convertible Preferred Stock prior to the Closing of the Merger were considered common stock equivalents, but were excluded from the calculation of diluted net loss per share for all periods in which the Company reported a net loss, as their effect was anti-dilutive.
Accordingly, in periods in which the Company reports a net loss available to common stockholders, diluted net loss per share available to common stockholders is the same as basic net loss per share available to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
The following table sets forth the computation of net (income) loss per common share:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding, basic | ||||||||||||||||
| Effect of potentially dilutive securities - stock options | ||||||||||||||||
| Effect of potentially dilutive securities - RSUs | ||||||||||||||||
| Weighted-average common shares outstanding, diluted | ||||||||||||||||
| Net income (loss) per share attributable to common stockholders, | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 30 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Convertible preferred stock (as converted to common stock) | ||||||||||||||||
| Senior Secured Notes, including accrued interest | ||||||||||||||||
| Public Warrants | ||||||||||||||||
| Private Placement Warrants | ||||||||||||||||
| Unvested Shares | ||||||||||||||||
| Stock options to purchase common stock | ||||||||||||||||
| Restricted stock units | ||||||||||||||||
18. Related Party Transactions
Legacy Zapata’s Chief Executive Officer and member of the its Board of Directors, as well as the Legacy Zapata’s Chief Technology Officer, entered into a Second Amended and Restated Right of First Refusal and Co-Sale Agreement on August 31, 2020. This agreement provides for customary rights of first refusal and co-sale related to certain sales of Zapata capital stock. This agreement terminated upon the Closing of the Merger.
A former member of the Board of Directors of Legacy
Zapata that left the Board of Directors in March 2024 also provided consulting services to the Company. For each of the nine months ended
September 30, 2024 and 2023, the Company remitted fees of $
On June 13, 2023, Legacy Zapata issued two Senior
Notes with respective principal amounts of $
One of AAC’s affiliates, Andretti Global,
has preexisting contractual relationships with Legacy Zapata. In February 2022, Andretti Global entered into i) an enterprise solution
subscription agreement and ii) a sponsorship agreement with Legacy Zapata (Note 16), both of which expire on December 31, 2024. During
the three and nine months ended September 30, 2024 and 2023, the Company recorded ($
For the three and nine months ended September
30, 2024 and 2023, the Company recorded $
On March 28, 2024, Legacy Zapata entered into
a sponsorship agreement with Andretti Autosport 1, LLC, an affiliate of Andretti Global, which expires on December 31, 2024. Legacy Zapata
is responsible for payments under the sponsorship agreement total $
On March 28, 2024, Legacy Zapata entered into
an Order Form under the February 2022 enterprise solution subscription agreement with Andretti Global. Pursuant to the agreement, Andretti
Global agreed to pay Legacy Zapata a total of $
| 31 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
19. Subsequent Events
The Company has evaluated all events subsequent to September 30, 2024 and through December 9, 2025, which represents the date these unaudited condensed consolidated financial statements were available to be issued.
Forward Purchase Agreement
The Forward Purchase Agreement provided that the
settlement with respect to the shares held by Sandia will be determined as of the “Valuation Date,” defined as the earliest
to occur of March 28, 2026, or certain other events that may, at the discretion of Sandia or the Company, accelerate the Valuation Date.
Such events included a written notice from Sandia following a period in which the
On October 8, 2024, the Company received notice
from Sandia accelerating the Valuation Date to October 8, 2024. Upon acceleration, the Company became obligated to pay to Sandia an amount
in cash equal to the Settlement Amount Adjustment, less any Settlement Amount owed to the Company by Sandia.
In June 2025, the Company satisfied its obligations under the Forward Purchase Agreement through the issuance of shares of the Company’s common stock to Sandia.
Departure of Directors or Certain Officers, Appointment of Certain Officers
On October 7, 2024, Christopher Savoie resigned as President and Chief Executive Officer of the Company, as well as a member of the board of directors of the Company with immediate effect.
On October 7, 2024, the board of directors of the Company appointed Sumit Kapur as the Chief Executive Officer and principal executive officer with immediate effect.
Cessation of Company’s Operations
On October 7, 2024, the board of directors of the Company approved cessation of the Company’s operations due to insufficient financial resources to fund its operations or pay certain existing obligations.
On October 7, 2024, in connection with the cessation of the Company’s operations the board of directors of the Company approved the termination of all of the Company’s employees, except for a small number of employees retained to administer termination of business activities, including Sumit Kapur, the Company’s Chief Financial Officer. All such employees were terminated effective October 9, 2024.
Departure of Directors or Certain Officers
Effective October 9, 2024, the Company determined that Yudong Cao, the Company’s Chief Technology Officer, would continue to serve in that role through October 16, 2024, following which he continued to assist the Company on a part-time basis, as needed.
Effective October 15, 2024, William M. Brown, Dana Jones, Jeffrey Huber, William Klitgaard and Raj Ratnakar resigned from their position as a member of the board of directors of the Company and all committees.
Convertible Promissory Notes and Warrants
In June 2025 the Company entered into a securities
purchase agreements (the “Purchase Agreements”) with accredited investors pursuant to which the Company sold and issued secured
convertible promissory notes (“Convertible Promissory Notes”) and warrants to purchase
The Convertible Promissory Notes have a principal
amount equal to the loan amount, mature on the one-year anniversary of the issuance date (subject to acceleration upon the occurrence
of certain customary events of default or a change of control), and bear
| 32 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
The Warrants have a term of five years. The Warrants
have an exercise price of $
Senior Secured Note Transfer
In January 2025, the senior secured note and related accrued and unpaid interest was assigned from its original note holder to a third-party. The transfer did not modify the terms of the note or its accounting treatment.
Consent and Security Agreement and Intercreditor Agreement
On June 12, 2025, the Company entered into a consent agreement (the “Consent”) with one of its two Secured Senior Notes lenders (the “Existing Lender”). Under the Consent, the Existing Lender agreed to waive certain rights under its outstanding Senior Secured Note Agreement. The waiver covered any default or event of default under the Senior Secured Note Agreement arising from, or in connection with, the transactions contemplated by the Purchase Agreement described above, as well as any defaults existing as of the date of the Consent. In consideration for the waiver, the Company issued shares of common stock to the Existing Lender.
In addition, the Company entered into an Intercreditor Agreement with the collateral agent and the Existing Lender providing for the relative rights with respect to the secured obligations of the Company.
Conversion Agreements and Universal Resale and Registration Provisions
In 2025, the Company entered into a series of
conversion agreements (the “Conversion Agreements”) with certain of its creditors. Pursuant to the
Universal Resale and Registration Provisions
In connection with each of the transactions described above, the Company and counterparties who received common stock or preferred stock entered into certain Universal Resale and Registration Provisions pursuant to which such recipients agreed to certain lock-up provisions restricting and limiting their sale, transfer, pledge, or disposal of any shares of common stock held by or issuable to such recipients.
Termination of a Material Definitive Agreement
In June 2025 the Company used approximately $
Compensatory Arrangements of Certain Officers
On June 13, 2025, the Board of Directors approved
and the Company granted to each of Sumit Kapur, the Company’s Chief Executive Officer and Clark Golestani, the Company’s sole
director, a grant of
Change in Company’s Certifying Accountant
On July 17, 2025 the Board of Directors appointed Weinberg & Company, P.A. as its independent registered public accounting firm.
| 33 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Series C Convertible Preferred Stock
On July 18, 2025, the Company filed the Certificate of Designations of Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of the Company with the Delaware Secretary of State designating and authorizing the issuance of up to shares of Series C Convertible Preferred Stock. Subsequently, on November 4, 2025, the Company filed a Certificate of Amendment to the Certificate of Designations (the “Certificate of Amendment”) to increase the number of authorized and designated shares of Series C Convertible Preferred Stock to shares.
Each share of Series C Convertible Preferred Stock is convertible into shares of common stock of the Company at the election of the holder, subject to certain adjustments and to beneficial ownership limitations. Each share of Series C Convertible Preferred Stock shall be entitled to vote with the Company’s common stock on an as-converted basis, subject to beneficial ownership limitations. The holders of Series C Convertible Preferred Stock shall rank pari passu with the holders of common stock with respect to any liquidation, dissolution or winding up of the Company.
Stock Options Issued to Certain Advisors
On August 18, 2025, the Company granted
options each to two advisors with an exercise price of $
Change of the Company’s Name
On August 21, 2025, the Company changed its name to “Zapata Quantum, Inc.”.
August 2025 Warrants
In August 2025 the Company entered into a warrant
purchase agreement (the “Warrant Purchase Agreement”) with accredited investor pursuant to which the Company sold and issued
the warrants to purchase up to
Appointment of Certain Officers and Compensatory Agreements of Certain Officers
On October 8, 2025, the Company appointed Mr.
William Klitgaard to the Board of Directors and named him as the sole member of the Audit Committee. In connection with his appointment,
the Company granted Mr. Klitgaard the following compensation: (i) a grant of five-year stock options, vesting in equal monthly
increments over a two-year period, subject to continued services to the Company as of each applicable vesting date, with an exercise price
of $
On October 9, 2025, the Company appointed Mr.
Clark Golestani, a director, to serve as Chairman of the Board of Directors. In connection with his appointment, the Company granted Mr.
Golestani five-year stock options with an exercise price of $
On October 9, 2025, the Company appointed Mr.
Sumit Kapur, Chief Executive Officer of the Company, to the Board of Directors. In connection with his appointment, the
| 34 |
ZAPATA COMPUTING HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollar amounts in thousands, except per share and share amounts) |
Series A Convertible Preferred Stock
In October and November 2025 the Company entered
into securities purchase Agreements with accredited investors, pursuant to which the Company offered and sold shares of the Company’s
Series A Convertible Preferred Stock at a purchase price of $ per share for total gross proceeds of $
On October 23, 2025, the Company filed the Certificate of Designations of Preferences, Rights and Limitations (the “Certificate of Designations”) of the Series A with the Delaware Secretary of State designating and authorizing the issuance of up to shares of Series A Convertible Preferred Stock.
Each share of Series A is convertible into shares of common stock of the Company at the election of the holder, subject to certain adjustments and to beneficial ownership limitations. Each share of Series A shall be entitled to vote with the Company’s common stock on an as-converted basis, subject to beneficial ownership limitations. All shares of capital stock of the Company, both common stock and any other series of preferred stock, shall be junior in rank to all shares of Series A with respect to payments upon the liquidation, dissolution, and winding up of the Company.
Forbearance Agreement
On October 22, 2025, the
The remaining 50% of the Overdue Amount (approximately $1,584) (the “Remaining Overdue Amount,” and together with the Contingent Obligations, the “Obligations”) will continue to be owed, and the creditor has agreed to temporarily forbear from enforcing collection during the forbearance period.
Beginning May 1, 2025, any unpaid portion of the Obligations will accrue a late charge at a rate equal to the lesser of 0.8% per month or the maximum rate permitted by law. The forbearance period will terminate—and the Remaining Overdue Amount, together with any accrued late charges, will become immediately due and payable—upon the occurrence of certain “Forbearance Termination Events,” including specified capital-raising or asset-sale transactions, defaults, or insolvency events.
| 35 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Forward-Looking Statements” and “Risk Factors” sections of this Quarterly Report on Form 10-Q, which describe factors or events that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For periods prior to the closing of the Merger (as defined below), the use of “our,” “we”, the “Company” and words of similar import in this Item 2 refer to Zapata Quantum, Inc. (“Zapata”, or “Legacy Zapata”) or Andretti Acquisition Corp. (“AAC”), as the context requires.
Cautionary Note Regarding Forward-Looking Statements
This Report contains forward-looking statements, including statements regarding our expectations for prospective future growth, operating results and financial condition, potential future trends and developments within our industry and the U.S. and global economies generally, plans and expectations for our future business plan and capital raising efforts, expectations and plans with respect to our products and services including the potential market for, timing, features, and demand for such products and services, and liquidity and sources of capital. Forward-looking statements are prefaced by words such as “anticipate,” “expect,” “plan,” “could,” “may,” “will,” “should,” “would,” “intend,” “seem,” “potential,” “appear,” “continue,” “future,” believe,” “estimate,” “forecast,” “project,” and similar words. We have based these forward-looking statements largely on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. We caution you, therefore, against relying on any of these forward-looking statements.
Our actual results may differ materially from those contemplated by the forward-looking statements for a variety of reasons, including, without limitation, the possibility that estimates, projections and assumptions on which the forward-looking statements are based prove to be incorrect, our ability to raise the necessary capital to re-establish material operations and generate revenue and the terms and timing of any related transactions, central bank interest rates and future interest rate changes, the risks arising from the impact of inflation, tariffs, the deterioration of the labor market of the United States, a recession which may result on the Company’s business, prospective customers, and on the national and global economy, our ability to attract homeowners to our products and services, the potential for regulatory changes impacting quantum computing, artificial intelligence, data privacy and other areas that impact the Company’s business, and the ability of us and third parties on which we depend to comply with applicable regulatory requirements, the risk that software and technology infrastructure on which we depend fail to perform as designed or intended, and the risks and uncertainties disclosed in our other reports and documents filed with the SEC. Any forward-looking statement made by us in this presentation speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Overview
Zapata Quantum, Inc., formerly known as Zapata Computing Holdings Inc., is a leading pure-play hardware-agnostic quantum software company. Following a strategic realignment in 2025, the Company will deliver subscription-based solutions to efficiently deploy and accelerate the development of quantum and hybrid quantum-classical computing applications. Founded in 2017 by researchers from a Harvard University Quantum Computing Lab, Zapata has built one of the industry’s most robust intellectual property portfolios in quantum and hybrid quantum-classical computing and algorithmic methods, with over 60 patents, granted and pending, developed over eight years.
Zapata’s software platform for quantum computing applications is based on our patented technology and supports a wide range of use cases in cryptography, pharmaceuticals, manufacturing, materials discovery and defense. The Company is the only organization to have participated across all technical areas of the Defense Advanced Research Projects Agency’s (“DARPA”)’s Quantum Benchmarking program and has worked with Fortune 500 enterprises and government agencies to unlock the potential of quantum computing.
Following a period of broader AI exploration, the Company undertook, in 2024 and 2025, a strategic realignment to refocus on its core quantum mission: developing the software and tooling layer that enables enterprises, governments, and researchers to harness quantum computing for economically meaningful outcomes.
| 36 |
In late 2024 the Company voluntarily elected to temporarily suspend its operations due to its limited capital resources and inability to access adequate liquidity to continue to fund its operations and meet its outstanding debt obligations. In June 2025, the Company commenced debt restructuring and capital raising transactions and the reinstatement of operations by (1) entering into exchange agreements with unsecured creditors pursuant to which such creditors agreed to exchange outstanding obligations payable to them for common stock and certain rights related thereto, and (2) the Company sold convertible notes and warrants for gross proceeds of $3 million. The Company has since been continuing efforts to negotiate and restructure outstanding obligations and raise capital. In the furtherance of recommencing operations, the Company has also entered into advisory agreements with third parties and agreed to compensate such parties in the form of equity and/or cash compensation. See Note 19, Subsequent Events in the notes to the unaudited condensed consolidated financial statements contained in this Quarterly Report.
Zapata’s hardware-agnostic approach and proprietary technology address the “software bottleneck” that limits quantum adoption. The Company’s products - Orquestra, Bench-Q, Quantum Graph, and Quantum Pilot - provide the infrastructure and workflow tools that connect problem discovery, algorithm design, and hardware execution. These tools are supported by professional services, partnerships, and licensing programs that collectively form the Company’s business model.
Recent Developments
Merger with Andretti Acquisition Corp. (“AAC”)
On March 28, 2024, we completed our planned business combination with AAC, pursuant to which, among other things, Legacy Zapata became a wholly owned subsidiary of AAC (the “Merger”). Immediately prior to the Merger, AAC filed an application for deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which AAC was domesticated and continues as a Delaware corporation (the “Domestication”), changing its name to Zapata Computing Holdings Inc. At the effective time of the Domestication, existing holders of ordinary shares of AAC received 7,596,206 shares of our common stock in exchange for their Class A and Class B ordinary shares held immediately prior to the Domestication.
Upon the closing of the Merger, holders of shares of Legacy Zapata common stock and Legacy Zapata Convertible Preferred Stock received an aggregate of 17,696,425 shares of our common stock, and holders of Legacy Zapata options received options to purchase an aggregate of 3,016,409 shares of our common stock, calculated in accordance with the Business Combination Agreement by and among AAC, Legacy Zapata and Tigre Merger Sub, Inc., entered into on September 6, 2023 (the Business Combination Agreement”), by multiplying each share of Convertible Preferred Stock, Legacy Zapata common stock (including shares underlying options) by 0.9141.
For accounting purposes, the Merger was accounted for as a reverse recapitalization whereby Legacy Zapata was treated as the accounting acquirer and AAC was treated as the acquired company. On April 1, 2024, in connection with the consummation of the Merger, our common stock was listed on the Nasdaq Global Market and our warrants (the “Warrants”) were listed on the Nasdaq Capital Market under the new trading symbols “ZPTA” and “ZPTAW,” respectively. Costs paid by us that were directly attributable to the Merger were $7.1 million and were treated as issuance costs and netted against additional paid-in-capital in our condensed consolidated balance sheets. Additionally, upon the consummation of the Merger, the holders of certain outstanding senior secured promissory notes issued by Legacy Zapata pursuant to a Senior Secured Note Purchase Agreement (the “Senior Secured Notes”) elected to convert the principal of their notes and accrued interest thereon into 3,257,876 shares of our common stock (856,202 shares to related parties) in accordance with their terms, at a conversion price of $4.50 per share. Aggregate principal and accrued interest of $2.2 million on the Senior Secured Notes remains outstanding as of September 30, 2024.
In connection with the closing of the Merger, the following events occurred as discussed in more detail below:
Unvested Shares
Concurrently with the execution of the Business Combination Agreement, AAC, Legacy Zapata, the Andretti Sponsor LLC (the “Sponsor”), Sol Verano Blocker 1 LLC (the “Sponsor Co-Investor”) and certain key stockholders of the Sponsor entered into a sponsor support agreement. The Sponsor, the Sponsor Co-Investor, key stockholders of the Sponsors and directors owned an aggregate of 5,750,000 Class B ordinary shares of AAC (the “Sponsor Shares”), of which up to 1,423,500 Sponsor Shares were subject to certain vesting and forfeiture provisions as described in the sponsor support agreement. At the closing of the Merger, 1,129,630 Sponsor Shares were determined to be unvested and are subject to forfeiture (the “Unvested Shares”) (see Note 10 in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report).
| 37 |
Forward Purchase Agreement
On March 25, 2024, we entered into a Confirmation of an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Agreement”) with Sandia Investment Management LP, acting on behalf of certain funds (collectively, “Sandia” or the “Seller”), pursuant to which Sandia purchased, prior to the closing of the Merger, 1,000,000 shares of AAC’s Class A Ordinary Shares from third parties through a broker in the open market (the “Recycled Shares”) and, concurrently with the closing of the Merger, 500,000 shares of our common stock at a purchase price of $10.99 per share (the “Additional Shares”).
In April 2024, Sandia exercised their optional early termination rights under the Forward Purchase Agreement, pursuant to which 250,000 shares were terminated and we received payments totaling $2.5 million under the early termination obligation prescribed in the Forward Purchase Agreement.
On October 8, 2024, we received notice from Sandia accelerating the Valuation Date to October 8, 2024. As a result, we became obligated to pay Sandia $2.4 million in cash or shares. In June 2025, we satisfied our obligations under the Forward Purchase Agreement through the issuance of 6,591,000 shares of common stock to Sandia. For additional information, refer to Note 19 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
As of September 30, 2024, the fair value of our obligation related to the Forward Purchase Agreement was $1.8 million, which was determined by multiplying the number of shares issued to Sandia by the stock price of $0.2711 as of September 30, 2024.
Advisory Agreements
On July 4, 2023, we entered into an engagement letter with a third party, pursuant to which the third party acted as a capital markets advisor to AAC in connection with the Merger. AAC agreed to pay the third party a fee of (i) $0.5 million in cash payable upon the closing of the Merger, plus (ii) $1.0 million in shares of our common stock, payable 180 days after the closing of the Merger plus (iii) $1.0 million payable in either cash or shares of our common stock, payable 270 calendar days following the completion of the Merger. On March 25, 2024, AAC and the third party entered into an amendment to the engagement letter to settle the fee arrangement, such that there is no remaining payment obligation following the Merger.
On September 13, 2023, we entered into an agreement with an additional third party for advisory services to be provided in connection with the Merger. In March 2024, the payment terms of the agreement were amended to provide for a fee of $1.3 million to be paid by the issuance of a Senior Secured Note with a principal amount of $1.0 million and the remaining $0.3 million in six monthly installments in cash of $42 thousand per month commencing on May 15, 2024. During the nine months ended September 30, 2024, we paid $0.1 million to the third party.
The Senior Secured Note issued to this third party was a modified award issued subsequent to the initial date of grant. The incremental fair value of the Senior Secured Note immediately preceding the award modification was recorded as a loss on issuance of senior secured notes within total other expense, net in the condensed consolidated statements of operations and comprehensive income (loss). The Senior Secured Note issued to the third party has the same terms as the Senior Secured Notes issued to other noteholders. The third party did not convert the Senior Secured Note into shares of our common stock upon the Closing of the Merger, and the Senior Secured Note remained outstanding at September 30, 2024.
On February 9, 2024, we entered into a capital markets advisory agreement with a third party pursuant to which we agreed to pay the third party i) $0.3 million for capital markets advisory services provided related to the Merger, and ii) $0.2 million for services provided related to the benefit of the holders of AAC and Legacy Zapata securities. On March 27, 2024, we agreed to issue to the third party a Senior Secured Note in the principal aggregate amount of $0.2 million immediately prior to the closing of the Merger in exchange for additional capital markets advisory services provided in connection with the Merger. This Senior Secured Note was then converted into 33,333 shares of our common stock at the closing of the Merger. We recorded a reduction of $0.5 million in additional paid-in capital on the condensed consolidated balance sheet as a transaction cost in connection with the capital markets advisory services provided. During the nine months ended September 30, 2024, in connection with the 33,333 shares issued for the additional services, we recognized $0.2 million in general and administrative expense in the condensed consolidated statements of operations and comprehensive income (loss).
On February 9, 2024, we entered into an engagement letter with an additional third party, as amended on February 27, 2024, pursuant to which the third party acted as a capital markets advisor to us in connection with the Merger. We agreed to pay the third party a non-refundable cash fee of $1.8 million, payable by us in monthly payments of $0.1 million commencing on the earlier of May 31, 2024 or the effectiveness of the Lincoln Park Registration Statement, until the full advisory fee of $1.8 million has been paid (the “Term”), with $0.3 million of such payment waivable if we voluntarily prepay $1.5 million to the third party prior to December 31, 2024. The Lincoln Park Registration Statement was declared effective on April 18, 2024. Notwithstanding the foregoing, we will pay the full $1.8 million upon consummation of a financing transaction with proceeds of $15.0 million or more (not including sales under the Purchase Agreement or similar financing) during the Term. Upon the closing of the Merger, we recognized $1.8 million as transaction costs, which we recorded as a reduction in additional paid-in capital. We also recorded an obligation of $1.2 million to the third party in accrued expenses and other current liabilities within the condensed consolidated balance sheet as of September 30, 2024. During the nine months ended September 30, 2024, we paid $0.3 million to the third party.
| 38 |
In March 2024, Legacy Zapata entered into a placement agent agreement to retain an additional third party for the purpose of raising up to $10.0 million, for a term of 60 days from the execution of the placement agent agreement. Legacy Zapata agreed to pay a cash fee equal to 7.0% of the gross amount of cash proceeds (the “Financing Proceeds”) received by Legacy Zapata from investors introduced by the third party directly to Legacy Zapata. The cash fee is payable within 7 business days following Legacy Zapata’s receipt of proceeds from any investors introduced by the third party. In addition, Legacy Zapata agreed to issue a number of shares of common stock equal to 3.0% of the Financing Proceeds divided by $4.50 upon the closing of the Merger. In connection with the placement agent agreement, we made a cash payment of $0.1 million and issued 11,666 shares of common stock upon the closing of the Merger.
Marketing Services Agreement
On February 9, 2024, prior to the Merger, AAC entered into a marketing services agreement with a third party to promote investor engagement, pursuant to which we agreed to pay the third party in shares of our common stock with a value of $0.3 million upon the closing of the Merger. In connection with our closing of the Merger, we issued 30,706 shares of our common stock to the third party.
Enterprise Solution and Sponsorship Agreements with Andretti Global
One of AAC’s affiliates, Andretti Autosport Holding Company, LLC (f/k/a Andretti Autosport Holding Company, Inc.) (“Andretti Global”) has preexisting contractual relationships with the Company. In February 2022, we entered into i) an enterprise solution subscription agreement and ii) a sponsorship agreement with Andretti Global, both of which expire on December 31, 2024. During the three and nine months ended September 30, 2024 and 2023, we recorded $0.4 million, $0.4 million, $1.3 million and $1.3 million in revenue, respectively, related to the enterprise solution subscription agreement. We also entered into a managed service agreement with Andretti Global in October 2022, which expired on January 3, 2024. For the three and nine months ended September 30, 2024 and 2023, we recorded $0, $0.1 million, $0 and $0.2 million, respectively, in revenue related to the managed service agreement. For the three and nine months ended September 30, 2024 and 2023, we recorded $0.7 million, $0.7 million, $2.1 million and $2.1 million in sales and marketing expense related to the sponsorship agreement. We recognize expense for the agreement over the period of service and will recognize $0.7 million in the remaining three months during the year ending December 31, 2024. The remaining committed future payments under the sponsorship agreement at September 30, 2024 include $3.8 million in accounts payable at September 30, 2024. We considered that these agreements were executed prior to the Business Combination Agreement and were not executed in contemplation of the business combination. Accordingly, Andretti Global was not considered a related party prior to the consummation of the Merger with AAC.
On March 28, 2024, we entered into a sponsorship agreement with Andretti Autosport 1, LLC, an affiliate of Andretti Global. The agreement expires on December 31, 2024. Our committed future payments under the sponsorship agreement total $1.0 million.
On March 28, 2024, we entered into an Order Form under the February 2022 enterprise solution subscription agreement with Andretti Global. Pursuant to the agreement, Andretti Global agreed to pay us a total of $1.0 million, subject to our payment of the sponsorship fee to Andretti Autosport 1, LLC.
Purchase Agreements with Lincoln Park
On December 19, 2023, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park agreed to purchase from us, at our option, an aggregate of up to $75.0 million of our common stock from time to time over a 36-month period following the Commencement Date, subject to certain limitations contained in the Purchase Agreement including, but not limited to, the filing and effectiveness of a registration statement (the “Lincoln Park Registration Statement”). In accordance with the Purchase Agreement, we were required to pay Lincoln Park a commitment fee of $1.7 million (the “Commitment Fee”) as follows: (i) on the business day prior to the filing of the Lincoln Park Registration Statement, $0.6 million in shares of our common stock and (ii) we could elect to pay the remaining $1.1 million amount of the Commitment Fee in either cash or shares of our common stock, with any shares issuable on the business day prior to the filing of the Lincoln Park Registration Statement and any cash due within 90 days of the closing of the Merger. Shares issued as payment for the Commitment Fee are referred to herein as the “Commitment Shares.”
On April 12, 2024, we filed the Lincoln Park Registration Statement, which covers the shares of our common stock that are issuable to Lincoln Park under the Purchase Agreement (including the Commitment Shares). The Lincoln Park Registration Statement registered for resale up to 13,000,000 shares of common stock (inclusive of the Commitment Shares) that have been or may be issued to Lincoln Park pursuant to the Purchase Agreement. On April 11, 2024, we issued 712,025 shares of common stock to Lincoln Park as Commitment Shares at a price of $2.37 per share. As of September 30, 2024, we issued 10,378,780 shares of common stock to Lincoln Park for aggregate proceeds of $7.7 million (excluding the Commitment Fee shares).
| 39 |
On August 13, 2024, we entered into a purchase agreement (the “2024 Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us, at our option, an aggregate of up to $10.0 million of shares of our common stock from time to time over a 24-month period upon the satisfaction of certain conditions contained in the 2024 Purchase Agreement including, but not limited to, the filing and effectiveness of a registration statement covering shares of common stock that are issuable to Lincoln Park under the 2024 Purchase Agreement. In accordance with the 2024 Purchase Agreement, we issued 500,000 shares of common stock to Lincoln Park as a Commitment Fee. In connection with the 2024 Purchase Agreement, we also entered into a Registration Rights Agreement (the “2024 Registration Rights Agreement”) with Lincoln Park, pursuant to which we will file a registration statement covering the shares of common stock that are issuable to Lincoln Park under the 2024 Purchase Agreement with the SEC within 15 business days following the date that the 2024 Registration Rights Agreement was executed. We filed the Lincoln Park Registration Statement on September 3, 2024, which was declared effective on September 9, 2024. As of September 30, 2024, the we issued 2,100,000 shares of common stock to Lincoln Park under 2024 Purchase Agreement for aggregate proceeds of $0.7 million (excluding the Commitment Fee shares).
In connection with the Operational Cessation described below, the registration statement in connection with the Purchase Agreement is no longer effective (which is a condition to transactions under the Purchase Agreement).
Operational Cessation
On October 7, 2024, our board of directors approved the cessation of our operations (the “Operational Cessation”) due to insufficient financial resources to continue funding ongoing operations and meet existing obligations. In connection with the Operational Cessation, our board of directors approved the termination of all our employees, except for a small number of employees retained to administer termination business activities, including Sumit Kapur, our Chief Financial Officer. All such employees were terminated effective October 9, 2024. Following the Operational Cessation, we maintained minimal day-to-day operations.
On October 25, 2024, trading of our common stock and warrants was suspended and removed from the listing and registration on Nasdaq.
Operations Prior to Operational Cessation
Prior to the Operational Cessation, we offered specialized generative AI solutions which used techniques inspired by quantum physics and were tailored to solving complex industrial problems. These solutions combined software and related services and were subscription based. Our approach utilized mathematical techniques from the quantum physics community to make computation more efficient and to create models that have other advantages over conventional methods. Our primary target customers were enterprise organizations, which generally consist of large businesses that have high revenue, the size and resources to dominate a specific market and a significant number of employees.
We had a suite of three subscription-based specialized generative AI offerings that included software and software tools supported by services. These offerings consist of:
• Zapata AI Sense (“Sense”): A suite of algorithms and complex mathematical models to enhance analytics and other data-driven applications.
• Zapata AI Prose (“Prose”): Our set of generative AI solutions based on large language models (“LLMs”), similar to widely used generic chatbot applications but customized to an enterprise’s industry and its unique problems.
• Orquestra: The Company’s specialized generative AI application development platform on which it provides Sense and Prose to customers.
Restructuring Efforts
As noted above, since the Operational Cessation, we have had minimal day-to-day operations. Management has since concentrated its efforts on restructuring activities aimed at restarting certain aspects of its core business, including capital-raising activities to improve our capital structure and to support the anticipated recommencement of business operations. For additional information regarding these restructuring activities, refer to Note 19 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Since our inception through September 30, 2024, we have financed our operations primarily through sales of our convertible preferred stock, par value $0.0001 per share (the “Convertible Preferred Stock”) and common stock and with issuances of Senior Notes and Senior Secured Notes (each as defined below and, collectively, the “Convertible Notes”). For the three and nine months ended September 30, 2024 we have generated net income of $3.5 million and incurred net losses of $34.4 million, respectively. As of September 30, 2024 and December 31, 2023, we had an accumulated deficit of $123.9 million and $89.5 million, respectively.
Our ability to continue as a going concern is dependent upon our ability to raise capital through future equity or debt financing and generate profits from our operations. We are pursuing all available options for funding, which include seeking public or private investments and funding through and funding through the sale of equity or debt securities.
| 40 |
In 2025, we raised an aggregate of $3.0 million through the issuance of Convertible Notes and $1.5 million through the sale of Series A Convertible Preferred Stock. The proceeds from the Convertible Notes were used to repay one of our outstanding Senior Secured Notes. In addition, in 2025, we entered into conversion agreements with certain creditors to settle approximately $11.8 million of liabilities through the issuance of shares of our common stock. These activities were undertaken as part of our ongoing efforts to improve the Company’s capital structure and provide the liquidity necessary to support restarting certain aspects of our core business.
Although we believe that we will be able to continue to raise funds through the sale of our securities to provide the additional funding needed to meet our obligations, the restructuring activities aimed at restarting certain aspects of our core business will require substantial additional funding and there is no assurance that we will be able to continue raising the additional capital necessary to continue operations and execute on our business plan.
These factors raise substantial doubt about our ability to continue as a going concern.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. We have evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. We have incurred significant losses and negative cash flows from operations since the inception of Legacy Zapata in November 2017 and expects to continue to incur losses and negative cash flows for the foreseeable future as we expand our penetration of the quantum computing application development solutions market.
See “Liquidity and Capital Resources” below for additional information.
Components of Our Results of Operations
Revenue
Our revenue is generated primarily from sales of subscriptions to our software platform and related services. Subscriptions to our software platform are offered as stand-ready access to our cloud environment on an annual or multi-year basis. We may also offer consulting services in the form of stand-ready scientific and software engineering services, which are typically only offered in conjunction with our software platform. We evaluate our contracts at inception to determine if the terms represent a single, combined performance obligation or multiple performance obligations.
Under our consulting contracts, our deliverables may include integrated quantum, classical or hybrid quantum-classical computing solutions to our customers or to provide research and development services regarding the potential benefits of these solutions to use cases specified by our customer. Our subscription-based solutions consist of our commitment to provide access to our hosted software platform throughout the contract term along with stand-ready scientific and software engineering services.
Revenue from subscriptions to our software platform to date have only been sold as access to the platform in our hosted environment and are therefore recognized over the contract term on a ratable basis, as the commitment represents a stand-ready performance obligation.
Revenue from consulting services is generally recognized over the contract term as performance is completed on the performance obligations identified. Revenue from stand-ready scientific and engineering services are recognized over the contract term on a ratable basis, as the obligation represents a stand-ready obligation.
From time to time, we may enter into arrangements to build license applications that can be used in conjunction with our software platform. To date, the license application built has been delivered as a perpetual license with associated post-contract support. We recognize the license at the time of deployment, and the related post-contract support over the contracted service period on a ratable basis, as it is provided as a stand-ready service.
Our revenue recognition policies are discussed below under the heading “Critical Accounting Policies and Significant Judgments and Estimates” and Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements, included elsewhere in this Quarterly Report.
| 41 |
Cost of Revenue
Cost of revenue includes expenses related to supporting product offerings. Our primary cost of revenue is personnel costs, including salaries and other personnel-related expense. Cost of revenue also includes costs relating to our information technology and systems, including depreciation, network costs, data center maintenance, database management and data processing costs. We allocate these overhead expenses based on headcount, and thus are reflected in cost of revenue and each operating expense category.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs, including salaries and wages, benefits, commissions, bonuses and stock-based compensation expense for our employees engaged in sales and sales support, business development, marketing, corporate partnerships, and customer service functions. Sales and marketing expenses also include costs incurred for market research, tradeshows, branding, marketing, promotional expense, and public relations, as well as facilities and other supporting overhead costs, including depreciation and amortization. Sales and marketing expenses are primarily driven by investments in the growth of our business. We expect sales and marketing expenses, expressed as a percentage of revenue, to vary from period to period for the foreseeable future.
Advertising expenses, which are included in sales and marketing expense, primarily include promotional expenditures, and are expensed as incurred. The amounts incurred for advertising expenses for the three and nine months ended September 30, 2024 and 2023 were $1.0 million, $0.7 million, $2.8 million and $2.1 million, respectively.
Research and Development
Research and development expenses consist primarily of personnel-related costs, including salaries and wages, benefits, bonuses, and stock-based compensation expense for our scientists, engineers and other employees engaged in the research and development of our products. In addition, research and development expenses include third party software subscription costs, facilities and other supporting overhead costs, including depreciation and amortization. Research and development costs are expensed as incurred.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries and wages, bonuses, benefits, and stock-based compensation expense for our finance, legal, information technology, human resources, and other administrative personnel. General and administrative expenses also include facilities and supporting overhead costs, including depreciation and amortization, and external professional services.
Other Expense, Net
Other expense, net consists primarily of fair value adjustments related to our Senior Secured Notes and derivative contract in connection with our Forward Purchase Agreement, loss associated with amendments to capital markets advisory agreements, interest income, interest expense and foreign exchange gains and losses from our international operations.
Income Taxes
For the three and nine months ended September 30, 2024, the Company recorded an income tax provision of $7 and $20, respectively. For the three and nine months ended September 30, 2023, the Company recorded an income tax provision of $2 and $29, respectively. These are related to income taxes from our foreign operations with pre-tax income generated from intercompany activities. We recorded a full valuation allowance of our net deferred tax asset position as of September 30, 2024 as we believe it was more likely than not that we would not be able to utilize our deferred tax assets.
| 42 |
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue (($302) and $494 from related parties, respectively) | $ | 657 | $ | 1,410 | $ | (753 | ) | -53 | % | |||||||
| Cost of revenue | 913 | 1,222 | (309 | ) | (25 | ) | ||||||||||
| Gross profit | (256 | ) | 188 | (444 | ) | (236 | ) | |||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing ($696 and $696 from related parties, respectively) | 2,069 | 1,315 | 754 | 57 | ||||||||||||
| Research and development | 1,371 | 1,495 | (124 | ) | (8 | ) | ||||||||||
| General and administrative | 3,926 | 2,229 | 1,697 | 76 | ||||||||||||
| Total operating expenses | 7,366 | 5,039 | 2,327 | 46 | ||||||||||||
| Loss from operations | (7,622 | ) | (4,851 | ) | (2,771 | ) | 57 | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (55 | ) | — | (55 | ) | — | ||||||||||
| Change in fair value of forward purchase agreement derivative liability | 11,376 | — | 11,376 | — | ||||||||||||
| Other expense, net | (210 | ) | (502 | ) | 292 | (58 | ) | |||||||||
| Total other income (expense), net | 11,111 | (502 | ) | 11,613 | NM** | |||||||||||
| Net income (loss) before income taxes | 3,489 | (5,353 | ) | 8,842 | (165 | ) | ||||||||||
| Provision for income taxes | (7 | ) | (2 | ) | (5 | ) | 250 | |||||||||
| Net loss | $ | 3,482 | $ | (5,355 | ) | $ | 8,837 | -165 | % | |||||||
** Not meaningful
Revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue (($302) and $494 from related parties, respectively) | $ | 657 | $ | 1,410 | $ | (753 | ) | -53 | % | |||||||
Revenue was at $0.7 million for the three months ended September 30, 2024, as compared to $1.4 million for the three months ended September 30, 2023. The decrease of $0.7 million was primarily attributable to the reversal of related-party revenue and reductions associated with the completion of legacy contracts, partially offset by revenue from newly initiated projects during 2024. The related-party revenue reversal pertains to the enterprise solution subscription agreement with Andretti Global, which was initially recognized as revenue in the second quarter of 2024 and subsequently determined to be uncollectible.
Cost of Revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Cost of revenue | $ | 913 | $ | 1,222 | $ | (309 | ) | (25 | )% | |||||||
Cost of revenue was $0.9 million for the three months ended September 30, 2024, as compared to $1.2 million for the three months ended September 30, 2023. The decrease of $0.3 million was primarily driven by ordinary business fluctuations, including costs incurred to fulfill revenue contracts.
| 43 |
Operating Expenses
Sales and Marketing Expenses
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Sales and marketing ($696 and $696 from related parties, respectively) | $ | 2,069 | $ | 1,315 | $ | 754 | 57 | % | ||||||||
Sales and marketing expense was $2.1 million for the three months ended September 30, 2024, as compared to $1.3 million for the three months ended September 30, 2023. The increase of $0.8 million was primarily driven by a $0.3 million rise in costs related to a sponsorship agreement with Andretti Autosport 1, LLC, a $0.3 million increase attributable to expanded sales staffing and a $0.2 million increase in outbound marketing during the three months ended September 30, 2024.
Research and Development Expenses
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Research and development | $ | 1,371 | $ | 1,495 | $ | (124 | ) | (8 | )% | |||||||
Research and development expense was $1.4 million for the three months ended September 30, 2024, as compared to $1.5 million for the three months ended September 30, 2023. The decrease of $0.1 million was primarily driven by lower personnel-related costs resulting from reduced staffing levels, partially offset by higher hosting charges incurred as a result of a collaborative research agreement initiated during 2024.
General and Administrative Expenses
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| General and administrative | $ | 3,926 | $ | 2,229 | $ | 1,697 | 76 | % | ||||||||
General and administrative expenses were $3.9 million for the three months ended September 30, 2024, compared to $2.2 million for the three months ended September 30, 2023. The increase of $1.7 million was primarily attributable to costs associated with the Company’s transition from a private to a public entity. This includes a $0.6 million increase in professional services costs, a $0.4 million increase in compensation to our board of directors, a $0.2 million increase in directors and officers insurance, costs incurred related to the search and replacement of key officers of 0.2 million and increases in office-related and other expenses.
Other Expense, Net
| Three Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||
| (in thousands) | ||||||||||||||
| Total other income (expense), net | $ | 11,111 | $ | (502 | ) | $ | 11,613 | NM** | ||||||
** Not meaningful
We recorded other income, net of $11.1 million for the three months ended September 30, 2024, compared to $0.5 million of other expense for the three months ended September 30, 2023. The change of $11.6 million resulted primarily from a gain resulting from the change in the fair value of the forward purchase agreement derivative liability.
| 44 |
Provision for income taxes
The provision for income taxes was not material in either of the three months ended September 30, 2024 and 2023 and was related to our foreign operations.
Comparison of the Nine months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue ($1,300 and $1,483 from related parties, respectively) | $ | 3,876 | $ | 4,354 | $ | (478 | ) | -11 | % | |||||||
| Cost of revenue | 3,241 | 3,678 | (437 | ) | (12 | ) | ||||||||||
| Gross profit | 635 | 676 | (41 | ) | (6 | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing ($2,087 and $2,087 from related parties, respectively) | 5,910 | 4,664 | 1,246 | 27 | ||||||||||||
| Research and development | 4,378 | 5,094 | (716 | ) | (14 | ) | ||||||||||
| General and administrative | 10,415 | 4,997 | 5,418 | 108 | ||||||||||||
| Total operating expenses | 20,703 | 14,755 | 5,948 | 40 | ||||||||||||
| Loss from operations | (20,068 | ) | (14,079 | ) | (5,989 | ) | 43 | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (917 | ) | — | (917 | ) | — | ||||||||||
| Loss on issuance of forward purchase agreement derivative liability | (4,935 | ) | — | (4,935 | ) | — | ||||||||||
| Change in fair value of forward purchase agreement derivative liability | 3,148 | — | 3,148 | — | ||||||||||||
| Loss on issuance of senior secured notes | (9,776 | ) | — | (9,776 | ) | — | ||||||||||
| Other expense, net | (1,846 | ) | (1,031 | ) | (815 | ) | 79 | |||||||||
| Total other expense, net | (14,326 | ) | (1,031 | ) | (13,295 | ) | NM** | |||||||||
| Net loss before income taxes | (34,394 | ) | (15,110 | ) | (19,284 | ) | 128 | |||||||||
| Provision for income taxes | (20 | ) | (29 | ) | 9 | (31 | ) | |||||||||
| Net loss | $ | (34,414 | ) | $ | (15,139 | ) | $ | (19,275 | ) | 127 | % | |||||
** Not meaningful
Revenue
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue ($1,300 and $1,483 from related parties, respectively) | $ | 3,876 | $ | 4,354 | $ | (478 | ) | (11 | )% | |||||||
Revenue was $3.9 million for the nine months ended September 30, 2024, as compared to $4.4 million for the nine months ended September 30, 2023. The decrease of $0.5 million was primarily driven by declines associated with the completion of legacy contracts, partially offset by increases in revenue from newly initiated projects during 2024.
Cost of Revenue
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Cost of revenue | $ | 3,241 | $ | 3,678 | $ | (437 | ) | (12 | )% | |||||||
Cost of revenue was $3.2 million for the nine months ended September 30, 2024, as compared to $3.7 million for the nine months ended September 30, 2023. The decrease of $0.5 million was primarily driven by ordinary business fluctuations including the cost of fulfilling revenue contracts.
| 45 |
Operating Expenses
Sales and Marketing Expenses
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Sales and marketing ($2,087 and $2,087 from related parties, respectively) | $ | 5,910 | $ | 4,664 | $ | 1,246 | 27 | % | ||||||||
Sales and marketing expense was $5.9 million for the nine months ended September 30, 2024, as compared to $4.7 million for the nine months ended September 30, 2023. The increase of $1.2 million was primarily driven by a $0.7 million rise in costs related to a sponsorship agreement with Andretti Autosport 1, LLC, a $0.4 million increase attributable to expanded sales staffing and a $0.2 million increase in outbound marketing during the nine months ended September 30, 2024.
Research and Development Expenses
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Research and development | $ | 4,378 | $ | 5,094 | $ | (716 | ) | (14 | )% | |||||||
Research and development expense was $4.3 million for the nine months ended September 30, 2024, as compared to $5.1 million for the nine months ended September 30, 2023. The decrease of $0.8 million was primarily driven by a decrease of $1.1 million in personnel costs related to research and development headcount reductions, partially offset by a $0.4 million increase in hosting charges incurred as a result of a collaborative research agreement initiated during 2024.
General and Administrative Expenses
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| General and administrative | $ | 10,415 | $ | 4,997 | $ | 5,418 | 108 | % | ||||||||
General and administrative expenses were $10.4 million for the nine months ended September 30, 2024, compared to $5.0 million for the nine months ended September 30, 2023. The increase of $5.4 million was primarily attributable to costs associated with our transition from a private to a public entity. This includes a $3.3 million increase in professional services, a $0.4 million increase in compensation to our board of directors, a $0.5 million increase in directors and officers insurance premiums, a $0.9 million of costs incurred related to the search and replacement of our general counsel and Chief Financial Officer, and the hiring of our Chief Product Officer, a $0.2 million increase due to stock-based compensation and a $0.1 million increase related to additional office-related expenses.
Other Expense, Net
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Total other expense, net | $ | (14,326 | ) | $ | (1,031 | ) | $ | (13,295 | ) | NM** | ||||||
** Not meaningful
We recorded other expense, net of $14.3 million for the nine months ended September 30, 2024, compared to $1.0 million for the nine months ended September 30, 2023. The increase in other expense, net of $13.3 million resulted primarily from the loss on issuance of Senior Secured Notes of $9.8 million, the loss on the Forward Purchase Agreement of $4.9 million, an increase of $1.8 million in transaction costs incurred related to the Lincoln Park Purchase Agreement, and increase in interest expense of $0.9 million in connection with our Senior Secured Notes. These increases were partially offset from the conversion of Senior Notes to Senior Secured Notes on December 22, 2023, which resulted in no income or loss related to the remeasurement of the notes to fair value during the nine months ended September 30, 2024 compared to a $1.1 million loss on remeasurement of the notes to fair value during the nine months ended September 30, 2023, and a $3.1 million decrease from the change in fair value of the forward purchase agreement derivative liability.
| 46 |
Provision for income taxes
The provision for income taxes was not material during the nine months ended September 30, 2024 and 2023 and was related to our foreign operations.
Liquidity, Going Concern and Capital Resources
Since our inception, we have financed our operations primarily with proceeds from sales of Convertible Preferred Stock and common stock and the issuance of Convertible Notes. As of September 30, 2024, we had cash and cash equivalents of $3.1 million, excluding our restricted cash. Since our inception through September 30, 2024, we have sold 14,222,580 shares of our Convertible Preferred Stock for aggregate net proceeds of $64.7 million, received $14.5 million from the issuance of Senior Notes and Senior Secured Notes and $8.4 million in proceeds under an equity line of credit. Our principal use of cash is to fund our operations and platform development to support our growth.
As of November 30, 2025, we had approximately $2.1 million in cash. We do not have sufficient capital to meet our working capital needs for the 12 months following the date we file this Report.
Senior Secured Notes
In December 2023, prior to the Merger, we entered into a Senior Secured Note Purchase Agreement, pursuant to which we agreed to issue and sell up to $14.4 million in aggregate principal amount of Senior Secured Notes and offered to exchange our outstanding Senior Notes for Senior Secured Notes. All previously issued Senior Notes were canceled in exchange for Senior Secured Notes with a principal amount equal to the principal amount of the Senior Notes of $5.6 million plus accrued and unpaid interest of $0.6 million, through the date immediately prior to the exchange. We received gross proceeds in cash of $8.9 million from the issuance of Senior Secured Notes, excluding funds received upon the issuance of Senior Notes. In addition, we issued $1.1 million in aggregate principal amount of Senior Secured Notes to third party advisors in lieu of cash payment for services related to the Merger.
The Senior Secured Notes bear interest at the compound rate of 15% per annum and are convertible at the option of each noteholder in connection with the Merger at a conversion price of (i) $4.50 per share at the closing of the Merger or (ii) $8.50 per share at any time after the closing of the Merger. The outstanding principal amount of the Senior Secured Notes and all accrued but unpaid interest will be due and payable at the maturity date, December 15, 2026, unless otherwise converted. Upon the closing of the Merger, a portion of the aggregate outstanding Senior Secured Notes with an aggregate principal amount of $14.2 million and associated accrued interest of $0.5 million were converted into shares of our common stock and Senior Secured Notes with aggregate principal and accrued interest of $2.2 million remain outstanding as of September 30, 2024. While any Senior Secured Notes are outstanding, we cannot incur additional indebtedness for borrowed funds, except additional Senior Secured Notes, substantially similar notes or other debt instruments that are pari passu with or subordinate to the Senior Secured Notes.
Notes Payable – Related Parties
To finance transaction costs in connection with the Merger, the sponsor of AAC and certain of AAC’s officers and directors made working capital loans (the “Notes Payable – Related Party”) to AAC prior to the closing of the Merger. The Notes Payable – Related Party would either be repaid upon the consummation of the Merger, without interest, or at AAC’s discretion, up to $1.5 million of such Notes Payable – Related Party could be converted into Private Placement Warrants at a price of $1.00 per warrant on the date of the Merger (see Note 11 to our condensed consolidated financial statements, included elsewhere in this Quarterly Report).
On March 28, 2024, the terms of the Notes Payable – Related Party were amended, pursuant to which the outstanding principal balance plus the accrued interest of $2.6 million, which was also due per its terms at the closing of the Merger was deferred and became due in monthly installments (including interest accruing from the closing of the Merger through the payment date) for twelve months thereafter beginning thirty days following the effectiveness of the Lincoln Park Registration Statement. The Lincoln Park Registration Statement was declared effective on April 18, 2024. Upon the closing of the Merger, none of the note holders elected to exercise their option of converting their respective loans into warrants. The Notes Payable – Related Party bear interest at a rate of 4.5% per annum. As of September 30, 2024, the outstanding balance of the Notes Payable – Related Party was $1.9 million within our condensed consolidated balance sheet.
| 47 |
Lincoln Park Purchase Agreement
On December 19, 2023, prior to the Merger, we entered into a Purchase Agreement with Lincoln Park pursuant to which Lincoln Park agreed to purchase from us, an aggregate of up to $75.0 million of common stock from time to time over a 36-month period following the closing of the Merger. In addition, we paid Lincoln Park a Commitment Fee through the issuance of 712,025 shares of common stock. In connection with the Purchase Agreement, we also entered into a Registration Rights Agreement with Lincoln Park, pursuant to which we are obligated to file the Lincoln Park Registration Statement that covers the shares of common stock that are issuable to Lincoln Park under the Purchase Agreement (including the Commitment Shares) with the SEC within 45 days following the closing of the Merger. We filed the Lincoln Park Registration Statement on April 12, 2024.
On August 13, 2024, we entered into the 2024 Purchase Agreement with Lincoln Park pursuant to which Lincoln Park agreed to purchase from us, an aggregate of up to $10.0 million of shares of common stock from time to time over a 24-month period upon the satisfaction of certain conditions contained in the 2024 Purchase Agreement including, but not limited to, the filing and effectiveness of a registration statement covering shares of common stock that are issuable to Lincoln Park under the 2024 Purchase Agreement. In accordance with the 2024 Purchase Agreement, we issued 500,000 shares of common stock to Lincoln Park as a commitment fee. In connection with the 2024 Purchase Agreement, we also entered into the 2024 Registration Rights Agreement with Lincoln Park, pursuant to which we will file a registration statement covering the shares of common stock that are issuable to Lincoln Park under the 2024 Purchase Agreement with the SEC within 15 business days following the date that the 2024 Registration Rights Agreement was executed. We filed the Lincoln Park Registration Statement on September 3, 2024, which was declared effective on September 9, 2024.
See Recent Developments above for additional detail on Lincoln Park Purchase Agreement.
Forward Purchase Agreement
On March 25, 2024, we entered into the Forward Purchase Agreement with Sandia, pursuant to which Sandia purchased, from the open market, 1,000,000 Recycled Shares and 500,000 Additional Shares, which represents the maximum number of shares subject to purchase under the Forward Purchase Agreement, subject to adjustment as described below (the “Maximum Number of Shares”). The number of shares subject to the Forward Purchase Agreement (the “Number of Shares”) is subject to reduction following a termination of the Forward Purchase Agreement with respect to such shares.
Pursuant to the Forward Purchase Agreement, at the closing of the Merger, we prepaid to Sandia (the “Prepayment”), with respect to the Recycled Shares, with proceeds from the trust account, a cash amount equal to the (x) product of the number of Recycled Shares and (y) $10.99 per share, totaling $11.0 million which was paid at the closing of the Merger. With respect to the Additional Shares, a per share amount equal to $10.99 per share was netted against the proceeds from the Additional Shares received from Sandia, resulting in no cash received or paid for the share issuance.
As of September 30, 2024, the reset price (the “Reset Price”) was $4.50 per share and will be subject to reset on a monthly basis (each a “Reset Date”), with the first such Reset Date occurring 180 days after the closing date of the Merger, to be greater of (a) $4.50 and (b) the 30-day volume weighted average price of shares of our common stock immediately preceding such Reset Date. Except as described below, the Reset Price will be reduced immediately to any lower price at which we close any agreement to sell or grants any right to reprice, or otherwise disposes of or issues (or announces any offer, sale, grant or any option to purchase or other disposition of) any shares of our common stock or securities or any of our subsidiaries convertible, exercisable or exchangeable into, or otherwise entitles the holder thereof to receive, shares of our common stock or other securities (a “Dilutive Offering and, such reset, a Dilutive Offering Reset”).
In the event of a Dilutive Offering Reset, the Maximum Number of Shares will be increased to an amount equal to the quotient of (i) 1,500,000 divided by (ii) the quotient of (a) the price of such Dilutive Offering divided by (b) $10.00. In such event, Sandia has the right to purchase more Additional Shares, up to the Maximum Number of Shares, for which we will be required to provide a cash prepayment to Sandia netted against the purchase price for such shares, and such Additional Shares will be subject to the terms of the Forward Purchase Agreement.
To the extent Sandia does not early terminate shares purchased under the Forward Purchase Agreement, as described below, the parties will settle the then-outstanding shares held by Sandia upon the Valuation Date, such date being two years from the closing of the Merger, March 28, 2026, subject to acceleration under certain circumstances, including the occurrence of a VWAP Trigger Event, defined as an event that occurs if the volume weighted average price per share on any scheduled trading day, for any 20 trading days during a 30 consecutive trading day-period, is below $1.00 per share. On the Cash Settlement Payment Date, which is the tenth business day following the last day of the valuation period commencing on the Valuation Date, as described in the Forward Purchase Agreement (the “Valuation Period”), Sandia will pay to us a cash amount equal to (A) the number of shares subject to the Forward Purchase Agreement as of the Valuation Date less the number of unregistered shares, multiplied by (B) the volume-weighted average price over the Valuation Period (the “Settlement Amount”); provided, that if the amount of the Settlement Amount Adjustment (as defined below) payable by us to Sandia is less than the Settlement Amount, then the Settlement Amount Adjustment will be automatically netted from the Settlement Amount and any remaining amount paid in cash. We will pay to Sandia on the Cash Settlement Payment Date an amount (the “Settlement Amount Adjustment”) equal to (1) the Number of Shares as of the Valuation Date multiplied by $2.00 per share if the amount is to be paid in cash, or (2) if the Settlement Amount Adjustment exceeds the Settlement Amount, the Counterparty may at its election pay the Settlement Amount Adjustment to Sandia in shares of our common stock, in an amount equal to the product of the number of shares, including the Recycled Shares and the Additional Shares as of the Valuation Date multiplied by $2.25; provided, that in certain circumstances as described in the Forward Purchase Agreement, including if a Delisting Event (as defined in the Forward Purchase Agreement) occurs during the Valuation Period, such amount must be paid in cash.
| 48 |
In addition, during the term of the Forward Purchase Agreement, Sandia may elect to terminate the transaction in whole or in part by providing a written notice to us, which will specify the quantity by which the number of shares will be reduced (such election, an “Optional Early Termination” and, the shares subject to the Optional Early Termination, the “Terminated Shares”). We shall be entitled to an amount from Sandia, equal to the product of (x) the number of Terminated Shares and (y) the Reset Price, on the date of notice.
We determined that the Optional Early Termination provision and the Variable Maturity Consideration, which is the amount of the Settlement Amount Adjustment in excess of the Settlement Amount as defined above, within the Forward Purchase Agreement are considered as a freestanding financial instrument as the Optional Early Termination and the Variable Maturity Consideration cannot be legally detachable and separately exercisable from each other and meet the definition of a derivative. We recorded the derivative instrument as a liability on our condensed consolidated balance sheets, included elsewhere in this Quarterly Report, and measured it at fair value of $1.8 million as of September 30, 2024, with the initial value of the derivative recorded as a loss on issuance of forward purchase agreement derivative liability of $4.9 million in the condensed consolidated statements of operations and comprehensive income (loss), included elsewhere in this Quarterly Report. The change in fair value of the forward purchase agreement derivative liability of $11.4 million and $3.1 million was recorded during the three and nine months ended September 30, 2024, respectively, in the condensed consolidated statements of operations and comprehensive income (loss), included elsewhere in this Quarterly Report.
The Prepayment Amount is accounted for as a subscription receivable and recorded as a reduction to equity to reflect the substance of the overall arrangement as a net repurchase of the Recycled Shares and the Additional Shares. We recognized a subscription receivable of $11.0 million associated with the Recycled Shares as a reduction to additional paid-in capital in our condensed consolidated balance sheet, included elsewhere in this Quarterly Report, and a subscription receivable associated with the Additional Shares was fully offset with the proceeds that Sandia paid for the purchase of these shares, resulting in no cash received or paid for such share issuance.
In April 2024, Sandia elected to terminate the transaction in part by exercising the Optional Early Termination provision under the Forward Purchase Agreement, pursuant to which 250,000 shares were terminated. We received payments totaling $2.5 million under the Optional Early Termination provision prescribed in the Forward Purchase Agreement.
In addition, we reimbursed Sandia $0.1 million at the closing of the Merger for reasonable out-of-pocket expenses for costs incurred in connection with the transaction, and $0.1 million in expenses incurred in connection with the acquisition of the Recycled Shares. We will also pay to the third party a quarterly fee of $5 thousand in consideration of certain legal and administrative obligations in connection with this transaction.
On October 8, 2024, we received notice from Sandia accelerating the Valuation Date to October 8, 2024. Upon acceleration, we became obligated to pay to Sandia an amount in cash equal to the Settlement Amount Adjustment, less any Settlement Amount owed to us by Sandia. The Settlement Amount Adjustment was calculated as 1,250,000 shares multiplied by $2.00, or $2,500, and the Settlement Amount was calculated as 1,250,000 shares less 500,000 Unregistered Shares multiplied by the volume weighted daily VWAP Price of $0.0085 per share, or $64. Accordingly, we became obligated to pay Sandia an amount in cash or shares equal to $2.4 million.
In June 2025, we satisfied our obligations under the Forward Purchase Agreement through the issuance of 6,591,000 shares of our common stock to Sandia.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Net cash used in operating activities | $ | (15,099 | ) | $ | (12,385 | ) | ||
| Net cash used in investing activities | (34 | ) | — | |||||
| Net cash provided by financing activities | 14,946 | 5,654 | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (43 | ) | (13 | ) | ||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (230 | ) | $ | (6,744 | ) | ||
| 49 |
Operating Activities
Net cash used in operating activities was $15.1 million for the nine months ended September 30, 2024. The factors affecting our operating cash flows during this period were our net loss of $34.4 million, partially offset by a net change in our operating assets and liabilities of $3.8 million and non-cash charges of $15.5 million. The non-cash charges primarily consisted of $9.8 million in the loss on issuance of Senior Secured Notes, $2.0 million in equity line of credit commitment expense, $4.9 million in the loss on the forward purchase contract, $0.8 million in non-cash interest expense, $0.7 million in stock-based compensation expense, $0.2 million in non-cash vendor payments, $0.2 million in non-cash lease expense, and $0.1 million in depreciation and amortization expense, partially offset by $3.1 million in change in fair value of forward purchase contract. The change in operating assets and liabilities was driven by a $6.6 million increase in accounts payable and $0.3 million increase in deferred revenue, partially offset by a $1.3 million decrease in accrued expenses and other current liabilities and other non-current liabilities, a $0.9 million increase in prepaid expenses and other current assets, a $0.7 million decrease in deferred legal fees and a $0.3 million decrease in operating lease liabilities. The increase in accounts payable was primarily related to the increase in transaction costs and the timing of invoicing and payments of sponsorship fees and professional services fees. The increase in deferred revenue is due to the timing of billings related to customer contracts and the recognition of revenue from customer contracts. The decrease in accrued expenses and other current liabilities and other non-current liabilities was primarily due to the payment of legal and audit fees. The increase in prepaid expenses and other current assets was primarily due to the timing of vendor invoicing and payments for sponsorship fees. The decrease in deferred legal fees resulted from payments of fees. The decrease in operating lease liabilities resulted primarily from lease payments.
Net cash used in operating activities was $12.4 million for the nine months ended September 30, 2023. The factors affecting our operating cash flows during this period were our net loss of $15.1 million and a net change in our operating assets and liabilities of $0.7 million, partially offset by non-cash charges of $2.1 million. The non-cash charges primarily consisted of $0.1 million in depreciation and amortization expense, $1.1 million in the change in fair value of Senior Notes, $0.3 million in non-cash lease expense, and $0.6 million in stock-based compensation expense. The change in operating assets and liabilities was primarily driven by a $3.0 million increase in accounts payable, a $0.3 million increase in accounts receivable, a $1.3 million increase in prepaid expenses and other current assets, a $0.2 million decrease in accrued expenses and other current liabilities, a $0.3 million decrease in deferred revenue and a $0.3 million decrease in operating lease liabilities. The increase in accounts payable was primarily related to the timing of invoicing and payments of sponsor fees and professional services fees. The increase in accounts receivable is due to the timing of billings and collections from customer contracts. The increase in prepaid expenses and other current assets was primarily due to prepayments of sponsorship fees and the capitalization of professional service fees, offset by the reversal of capitalized commissions that will no longer be paid due to the termination of the employee as commission earned are typically paid 30 days after we receive the payment. The decrease in accrued expenses and other current liabilities is primarily due to payment of legal, consulting, and professional fees, the reversal of accrued commissions and reduction in accrued severance, and the payment of sponsorship fees, offset by an increase in vacation and bonus accruals due to the reversal of these accruals at year end as opposed to mid-year. The decrease in deferred revenue is due to the timing of billings related to customer contracts and the recognition of revenue from customer contracts. The decrease in operating lease liabilities resulted primarily from lease payments.
Investing Activities
During the nine months ended September 30, 2024, net cash used in investing activities was $34 thousand, primarily consisting of purchases of property and equipment. The purchases of equipment during these periods were primarily related to computer equipment purchases.
There were no investing cash flow activities during the nine months ended September 30, 2023.
Financing Activities
During the nine months ended September 30, 2024, net cash provided by financing activities was $14.9 million, which consisted of $12.6 million in proceeds from the closing of the Merger, $6.0 million in proceeds received from the issuance of Senior Secured Notes, $8.4 million in proceeds from issuances of common stock under the equity line of credit, $2.5 million in proceeds from the partial early termination of the Forward Purchase Agreement and $0.1 million in proceeds from exercises of stock options, partially offset by the payment of $0.1 million debt discount, payment of $0.6 million of notes payable to related parties, payment of $2.9 million of deferred offering costs and the prepayment of $11.0 million under the Forward Purchase Agreement.
During the nine months ended September 30, 2023, net cash provided by financial activities was $5.7 million, which consisted of $5.6 million in proceeds received from the issuance of Senior Notes and $29 thousand in proceeds from exercises of stock options.
| 50 |
Recent Financing and Restructuring Transactions
For a description of certain capital raising and restructuring activities we have conducted in 2025, see Note 19, Subsequent Events in the notes to the unaudited condensed consolidated financial statements contained in this Quarterly Report.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements during the periods presented. Zapata and Legacy Zapata have not entered into any off-balance sheet financing agreements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations and Other Commitments
Leases
As of September 30, 2024, the Company did not have any remaining obligations under operating lease agreements.
License and Collaboration Agreements
During 2018, we entered into an exclusive patent license agreement (the “license agreement”) with a term that continued unless terminated by the licensor or by us. The license agreement contained annual license maintenance fee payments, milestone payments, as well as payments based on a percentage of net sales. Under the license agreement, we issued shares of common stock to the licensor representing four percent of our capital stock on a fully diluted basis.
The license agreement obligated us to pay fixed annual license maintenance fees of $0.1 million for the year ended December 31, 2023, and $0.1 million per year thereafter until we or the licensor terminate the license. The license agreement obligated us to pay fixed milestone payments upon the achievement of certain sales thresholds. The milestone payments total $0.2 million, and the maximum sales threshold was $25.0 million. We did not trigger any payments to the licensor during the nine months ended September 30, 2024 and 2023.
The license agreement obligated us to pay a royalty equal to two percent of net sales. The license agreement also required us to make payments related to any sublicensing agreements, with varying amounts based on the type of sublicense. We did not pay any royalties during the nine months ended September 30, 2024 and 2023. On February 10, 2023, we terminated the license agreement by written notice to the licensor. Upon termination, all licensing rights held by us under the license agreement were forfeited to the licensor. We did not owe any accrued obligations or payments to the licensor as of the termination of the license agreement or thereafter.
Sponsorship Agreement
During 2022, we entered into a sponsorship agreement with Andretti Global. The total commitment under the sponsorship agreement is $8.0 million and is due and payable over the period of February 2022 through December 2024. The related expenses are amortized by straight-line method over the period. Through September 30, 2024, we paid $3.5 million under the sponsorship agreement and for the three and nine months ended September 30, 2024 and 2023, we recorded $0.7 million, $0.7 million, $2.1 million and $2.1 million in sales and marketing expense related to the sponsorship agreement. There was $4.5 million included in accounts payable as of September 30, 2024 related to the sponsorship agreement.
On March 28, 2024, we entered into an additional sponsorship agreement with Andretti Autosport 1, LLC, an affiliate of Andretti Global. The agreement expired on December 31, 2024. Subject to the agreement, we are responsible for payments under the sponsorship agreement an amount totaling $1.0 million.
Notes Payable—Related Parties
Pursuant to a Deferred Payment Agreement dated as of March 28, 2024, we amended the terms of our notes payable to related parties, pursuant to which the aggregate principal balance of the notes plus accrued interest through the closing of the Merger of $2.6 million was deferred at closing and became due in monthly installments (including interest accruing from the closing of the Merger though the payment date) beginning thirty days following the effectiveness of the Lincoln Park Registration Statement. The balance will be payable over a twelve-month term (including interest accruing from the closing of the Merger though the payment date). The Lincoln Park Registration Statement was declared effective on April 18, 2024. The Convertible Notes bear interest at a rate of 4.5% per annum.
Advisory and Other Agreements
In connection with the Merger, on September 13, 2023, we entered into an agreement with a third party for advisory services. In March 2024, the payment terms were amended to provide for a fee of $1.3 million, to be paid by the issuance of a Senior Secured Note with a principal amount of $1.0 million and the remaining $0.3 million in six monthly installments in cash of $42 thousand per month commencing on May 15, 2024. During the nine months ended September 30, 2024, we paid $0.1 million to the third party.
| 51 |
On February 9, 2024, we entered into an engagement letter with an additional third party, as amended on February 27, 2024. We agreed to pay the third party a non-refundable cash fee of $1.8 million, payable in monthly payments over the Term (as defined in Recent Developments), with $0.3 million of such payment waivable if we voluntarily prepay $1.5 million to the third party prior to December 31, 2024. Upon the closing of the Merger, we recognized $1.8 million as transaction costs, which was recorded as a reduction in additional paid-in capital. During the nine months ended September 30, 2024, we paid $0.3 million to the third party.
The following table reflects our obligations recorded in accounts payable, accrued expenses and other current liabilities, and non-current liabilities within the condensed consolidated balance sheet as of September 30, 2024, included elsewhere in this Quarterly Report. These obligations are expected to be fully repaid by December 31, 2025. During the nine months ended September 30, 2024, we paid $2.3 million under the agreements.
| Year ending | Amount | |||||
| 2024 (remaining) | 2,003 | |||||
| 2025 | 2,983 | |||||
| Total | $ | 4,986 | ||||
Legal Services Fees
In connection with the Merger, we incurred $4.0 million of deferred legal fees to be paid to AAC’s legal advisors upon consummation of the Merger, which were recorded as deferred legal fees in the historical audited financial statements as of and for the year ended December 31, 2023. On March 26, 2024, we entered into a fee letter for legal services rendered in connection with the Merger, pursuant to which the total fee of $3.3 million will be paid in equal monthly installments of $0.3 million per month over the twelve-month period starting on April 18, 2024. During the nine months ended September 30, 2024, we paid $0.7 million to the legal advisors.
Lincoln Park Purchase Agreement
In accordance with the Purchase Agreement, we paid Lincoln Park a commitment fee of approximately $1.7 million, which was recorded within other (expense) income, net in the condensed consolidated statement of operations for the nine months ended September 30, 2024, and was payable as follows: (i) on the business day prior to the filing of the Lincoln Park Registration Statement, $0.6 million in shares of common stock and (ii) we elected to pay the remaining $1.1 million amount of the Commitment Fee in either cash or shares of our common stock, with any shares issuable on the business day prior to the filing of the Registration Statement and any cash due within 90 days of the closing date of the Merger. On April 11, 2024, we issued 712,025 shares of common stock to Lincoln Park as consideration for the Commitment Fee.
On August 13, 2024, we entered into a Purchase Agreement (the “2024 Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us, at our option, an aggregate of up to $10 million of shares of common stock from time to time over a 24-month period upon the satisfaction of certain conditions contained in the 2024 Purchase Agreement including, but not limited to, the filing and effectiveness of a registration statement covering shares of common stock that are issuable to Lincoln Park under the 2024 Purchase Agreement. In accordance with the 2024 Purchase Agreement, we issued 500,000 shares of common stock to Lincoln Park as a commitment fee.
Forward Purchase Agreement
On October 8, 2024, we received notice from Sandia accelerating the Valuation Date to October 8, 2024. Upon acceleration, we became obligated to pay Sandia $2.4 million in cash or in shares. In June 2025, we satisfied our obligations by issuing 6,591,000 shares of our common stock to Sandia.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses incurred during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities recorded revenues and expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates.
| 52 |
While our significant accounting policies are described in more detail in Note 2 to our condensed consolidated financial statements included elsewhere in this Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, we recognize revenue when we satisfy a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
We recognize revenue using the following steps: (1) identification of the contract, or contracts with a customer, (2) identification of performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract and (5) recognition of revenue when or as we satisfy the performance obligations.
At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise, implicit or explicit, to transfer to the customer a good or service (or bundle of goods or services) that is distinct.
We currently earn revenue primarily from subscriptions to our software platform and related services. Subscriptions to our software platform are currently offered as stand-ready access to our cloud environment on an annual or multi-year basis. Our consulting services may result in either single or multiple performance obligations based on the contractual terms. We may also offer services in the form of stand-ready scientific and software engineering services, which are typically only offered in conjunction with the software platform. We evaluate our contracts at inception to determine if the promises represent a single, combined performance obligation, or multiple performance obligations. We allocate the transaction price to the performance obligations identified. Judgment is required to allocate the transaction price to each performance obligation. We utilize a stand-alone selling price methodology based on observable or estimated prices for each performance obligation. We consider market conditions, entity-specific factors, and information about the customer that is reasonably available to the entity when estimating stand-alone selling price for those performance obligations without an observable selling price. Our contracts do not contain rights of return, and any variable consideration as the result of service level agreements has been immaterial. We do not have other contractual terms that give rise to variable consideration.
Revenue from subscriptions to our software platform to date have only been sold as access to the platform in our hosted environment and are therefore recognized over the contract term on a ratable basis, as the promise represents a stand-ready performance obligation.
Revenue from consulting services is generally recognized over time. Our contracts typically contain fixed-fee transaction prices. We determine and record a provision for loss contracts at the contract level when the current estimate of total costs of the contract at completion exceeds the total consideration we expect to receive. We have not recorded any provision for loss contracts at September 30, 2024. For consulting services, we measure progress toward satisfaction of the performance obligation as the services are provided, and revenue is generally recognized based on the labor hours expended over time. Through this method, we recognize revenue based on the actual labor hours incurred to date compared to the current estimate of total labors hours to satisfy the performance obligation. This method requires periodic updates to the total estimated hours to complete the contract, and these updates may include subjective assessments and judgments. We had limited contracts, where based on our determination of the enforceability of payment terms, revenue was recognized at a point in time when payment became enforceable.
From time to time, we may enter into arrangements to build license applications that can be used in conjunction with our Orquestra Platform. To date, the license application built has been delivered as a perpetual license with associated post-contract support. We recognize the license at the time of deployment, and the related post-contract support over the contracted service period on a ratable basis, as it is provided as a stand-ready service.
Revenue from services sold in the form of stand-ready scientific and software engineering services are recognized over the contract term on a ratable basis, as the obligation represent a stand-ready obligation.
Our payment terms vary by contract and do not contain significant financing components. Amounts collected in advance of revenue recognized are recorded as deferred revenue in the condensed consolidated balance sheets.
| 53 |
Areas of Judgment and Estimation
Our contracts with customers can include multiple promises to transfer goods and services to the customer, which may be provided over one or more specified phases in the contract. Determining whether promises and/or phases are distinct performance obligations that should be accounted for separately or not distinct within the context of the contract and, thus, accounted for together, requires significant judgment. When customer contracts include promises for multiple goods, services and/or phases, we determine whether the nature of our promise is to transfer (a) multiple promised goods, services and/or phases or (b) a combined item that comprises multiple promised services and/or phases.
For consulting services performance obligations that are satisfied over time, we measure progress toward satisfaction of the performance obligation as the services are provided, and revenue is generally recognized based on the labor hours expended over time. Through this method, we recognize revenue based on the actual labor hours incurred to date compared to the current estimate of total labors hours to satisfy the performance obligation. We believe this method best reflects the transfer of control to the customer. This method requires periodic updates to the total estimated hours to complete the contract, and these updates may include subjective assessments and judgments.
Significant estimates and assumptions are used in the determination of the stand-alone selling price when multiple performance obligations are identified. We utilize a stand-alone selling price methodology based on observable or estimated prices for each performance obligation. We consider market conditions, entity-specific factors, and information about the customer that is reasonably available to the entity when estimating stand-alone selling price for those performance obligations without an observable selling price. Actual results could differ from those estimates and such differences could affect our financial position and results of operations.
Stock-Based Compensation Expense
We measure stock-based options granted to employees, directors, and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model for stock options. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Compensation expense for awards to non-employees with service-based vesting conditions is recognized in the same manner as if we had paid cash in exchange for the goods or services, which is generally the over the vesting period of the award. We use the straight-line method to recognize the expense of awards with service-based vesting conditions. We account for forfeitures of stock-based awards as they occur. As of September 30, 2024, all awards have service-based vesting conditions.
Determination of the Fair Value of Legacy Zapata Common Stock
The fair value of the common stock of Legacy Zapata has been determined by management with consideration to a third-party valuation, which contemplates a broad range of factors, including the illiquid nature of the investment in Legacy Zapata’s common stock, our historical financial performance and financial position, our future prospects and opportunity for liquidity events, and recent sale and offer prices of common and Convertible Preferred Stock, if any, in private transactions negotiated at arm’s length.
Senior Notes and Senior Secured Notes
Through September 30, 2024, we have issued $5.6 million in Senior Notes, all of which were canceled and, inclusive of interest of $0.6 million, exchanged for Senior Secured Notes on December 22, 2023, and $10.0 million in Senior Secured Notes to certain lenders. We performed an analysis of all of the terms and features of the Senior Notes and Senior Secured Notes. We elected the Fair Value Option to account for the Senior Notes as we identified embedded derivatives, such as voluntary conversion upon qualified financing, automatic conversion upon a De-SPAC Transaction, defined as a business combination between Legacy Zapata and a special purpose acquisition company, with or without a private investment in public equity (“PIPE”), automatic conversion upon an initial public offering, repayment under a change of control event, and optional conversion under prepayment, all of which would require bifurcation and separate accounting. The Senior Notes were remeasured at fair value at each balance sheet date until they were converted to Senior Secured Notes in December 2023. Changes to the fair value of the Senior Notes was recorded in other (expense) income, net in the condensed consolidated statements of operations and comprehensive income (loss). We had also elected the option of combining interest expense and the change in fair value as a single line item within the condensed consolidated statements of operations and comprehensive income (loss). The analysis of the fair value of the Senior Notes contained inherent assumptions related to the market interest rate, the probability of alternate financing, change of control, initial public offering, De-SPAC Transaction with or without a PIPE, maturity extension, and payment at original maturity. Due to the use of significant unobservable inputs, the overall fair value measurement of the Senior Notes was classified as Level 3.
We account for our Senior Secured Note issued to a third party for capital market advisory services in connection with the Merger as a stock-based award granted to non-employees and measure the award based on the merger date fair value using the binomial lattice model. The award is marked to its redemption value, including paid in-kind interest, if such value exceeds the fair value of the award at the merger date and each reporting period thereafter and we will recognize the additional fair value amount over redemption value as necessary.
We account for our remaining Senior Secured Notes at amortized cost, as they were issued at a substantial premium and do not qualify for the Fair Value Option. Legacy Zapata concluded that the optional conversion feature was not required to be bifurcated or separately accounted for as a derivative. Costs related to the issuance of the remaining Senior Secured Notes were recorded as a debt discount as a reduction of the carrying value of the notes and amortized over the term of the notes and are recorded in other (expense) income, net within the condensed consolidated statements of operations and comprehensive income (loss) using the effective interest method.
| 54 |
Upon the closing of the Merger, a portion of the aggregate outstanding Senior Secured Notes converted into 3,257,876 shares of common stock (856,202 to related parties). Upon the conversion of the Senior Secured Notes, the principal balance of the debt of $14.2 million and associated accrued interest of $0.5 million were converted, resulting in an increase in common stock and additional paid-in capital of $14.7 million. Certain holders of the Senior Secured Notes, holding $2.0 million in aggregate principal amount, did not convert their Senior Secured Notes into shares of common stock and are recognized at amortized cost. As of September 30, 2024, the $2.2 million of aggregate principal and accrued interest on the outstanding Senior Secured Notes did not include any associated costs that are being recorded as a debt discount and amortized over the remaining term of the outstanding Senior Secured Notes.
Forward Purchase Agreement Derivative Liability
We utilized a Monte-Carlo simulation to value the Forward Purchase Agreement derivative liability. We determined that the Forward Purchase Agreement contains (i) an Optional Early Termination provision, and (ii) a Variable Maturity Consideration. The Optional Early Termination and the Variable Maturity Consideration, as combined, are considered as a freestanding financial instrument and meet the definition of a derivative instrument. The fair value of the forward purchase agreement derivative liability, consisting of the Optional Early Termination and the Variable Maturity Consideration, was estimated using a Monte-Carlo Simulation in a risk-neutral framework. The fair value of the derivative liability was equal to the difference between the fair value of the Forward Purchase Agreement and the amount of cash receivable at the two-year settlement date, which was calculated as the present value of the initial reset price of $10.00 per share (as defined in the Forward Purchase Agreement) discounted using the term-matched risk-free rate.
We recorded the derivative instrument as a liability on our condensed consolidated balance sheets and measured it at fair value of $1.8 million as of September 30, 2024, with the initial value of the instrument recorded as a loss on issuance of forward purchase agreement derivative liability of $4.9 million in the condensed consolidated statements of operations and comprehensive income (loss). The change in fair value of the forward purchase agreement derivative liability of $11.4 million and $3.1 million was recorded during the three and nine months ended September 30, 2024, respectively in the condensed consolidated statements of operations and comprehensive income (loss).
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements, which are included elsewhere in this Report.
Emerging Growth Company Status
Zapata Quantum Inc. qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by Financial Accounting Standards Board (“FASB”) or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies. We also intend to take advantage of some of the reduced regulatory and reporting requirements applicable to emerging growth companies pursuant to the JOBS Act so long as it qualifies as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
| 55 |
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2024, have concluded that, based on such evaluation, our disclosure controls and procedures were not effective due to the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2024, our disclosure controls and procedures were not effective:
| · | The Company does not have sufficient segregation of duties within accounting functions, as its Chief Executive Officer is the sole officer. |
| · | The Company does not have sufficient or complete written documentation of our internal controls policies and procedures. |
| · | A substantial portion of the Company’s financial reporting is carried out by an outside accounting firm. |
| · | The Company’s human resources, processes and systems are not sufficient to enable the production of timely and accurate financial statements in accordance with US GAAP. |
Plans for Remediation of Material Weaknesses
Management has taken actions to remediate the deficiencies in its internal controls over financial reporting and implemented additional processes and controls designed to address the underlying causes associated with the above-mentioned material weaknesses. Management is committed to finalizing the remediation of the material weaknesses. Management’s internal control remediation efforts include the following:
| · | We are currently in the process of identifying and engaging internal control consultants to assist us in performing a risk assessment as well as identifying and designing a system of internal controls necessary to mitigate the risks identified, including preparation of written documentation and testing of our internal control policies and procedures, such that we are able to perform a Section 404 analysis of our internal control over financial reporting when and as required; |
| · | We plan to increase our personnel resources and technical accounting expertise within the accounting function to replace our outside service providers; until we have sufficient technical accounting and financial reporting capabilities, we have retained an accounting consulting firm to provide support and to assist us in our evaluation of more complex applications of U.S. GAAP and assist us with financial reporting. |
Changes in Internal Control Over Financial Reporting
Other than with respect to the ongoing remediation efforts on the material weaknesses, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the Effectiveness of Internal Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
| 56 |
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of this filing, we are not aware of any material legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities. We are not aware of any material proceedings in which any of our directors, officers, or affiliates or any registered or beneficial stockholder of more than 5% of our common stock, or any associate of any of the foregoing, is a party adverse to or has a material interest adverse to, us or any of our subsidiaries.
Item 1A. Risk Factors.
Not applicable for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
None
Item 3. Defaults Upon Senior Securities.
During the fourth quarter of 2024, an event of default occurred under the Company’s Senior Secured Promissory Notes issued pursuant to the Senior Secured Note Purchase Agreement dated December 15, 2023. Under the terms of these notes, the Company’s Current Report on Form 8-K filed on October 11, 2024, in which the Company disclosed that, at that time, it was unable to, and unlikely to become able to, satisfy all of its financial obligations, constituted an event of default. As a result, all amounts outstanding under the Senior Secured Promissory Notes became immediately due and payable.
As of November 30, 2025, the Company has repaid approximately $1 million of principal, together with accrued interest, and has cured the event of default with respect to the remaining principal balance and accrued interest under the Senior Secured Promissory Notes. No Senior Secured Promissory Notes, or other Senior Securities, remain in default as of the filing date of this report.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended September 30, 2024,
none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
Item 6. Exhibits.
EXHIBIT INDEX
|
+
|
Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC Staff upon request. |
| # | Indicates management contract or compensatory plan, contract or agreement. |
| (1) | Filed herein |
| (2) | Furnished herein. |
| 57 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ZAPATA QUANTUM, INC. | ||
| December 9, 2025 | By: | /s/ Sumit Kapur |
| Sumit Kapur | ||
| Chief Executive Officer, Chief Financial Officer | ||
| (Principal Executive Officer, Principal Financing Officer) | ||
| 58 |